What's the APR of a ‘pint to say thanks for the cash’? poll discussion

Former_MSE_Lawrence · 10 March 2009 at 4:07PM

Poll between 10-16 March 09:

What's the APR of a ‘pint to say thanks for the cash’?

If someone lent you £20 and said "pay me back in a week, then buy me a pint (£2.75) and we’re sorted", what’s the equivalent APR?

Note: Thanks to Tony Levene’s guardian piece for inspiring this. To calculate the APR,a compound rate has been used.

You’ll find the answer by clicking the ‘Discuss Poll’ link AFTER you’ve voted.

A. 13.7% - [FONT=Arial,Helvetica,sans-serif]31% (3033 votes)[/FONT]
B. 82% [FONT=Arial,Helvetica,sans-serif]- 6% (611 votes)[/FONT]
C. 275% - [FONT=Arial,Helvetica,sans-serif]12% (1176 votes)[/FONT]
D. 137% - [FONT=Arial,Helvetica,sans-serif]11% (1069 votes)[/FONT]
E. 2,750% - [FONT=Arial,Helvetica,sans-serif]17% (1665 votes)[/FONT]
F. 13,700% - [FONT=Arial,Helvetica,sans-serif]9% (922 votes)[/FONT]
G. 82,000% - [FONT=Arial,Helvetica,sans-serif]7% (671 votes)[/FONT]
H. 275,000% - [FONT=Arial,Helvetica,sans-serif]4% (371 votes)[/FONT]
I. 1.37 million % - [FONT=Arial,Helvetica,sans-serif]4% (406 votes)[/FONT]

Voting has now closed, but you can still click 'post reply' to discuss below. Thanks

PLEASE VOTE BEFORE YOU ANSWER.

TO FIND OUT THE ANSWER...

CLICK YOUR MOUSE TO HIGHLIGHT THE WHITE GAP JUST BELOW THIS AND IT WILL APPEAR.

Martin’s Answer and Explanation: The correct answer is G. Just over 82,000%. This is based on the fact that £2.75 on £20 is a 13.75% a WEEK interest rate. If that were to continue for all 365 days in the year including compound interest, the rate is just over 82,000%, meaning you’d owe over £16,000 (820x£20)

Now of course, the compounding of this is questionable. It assumes that because you must buy a pint if someone lends you £20, you would thus buy a pint and a half if someone lent you £30. Yet in reality it doesn’t work that way, it’d probably be just another pint. However if we focus on a pint as costing £2.75, and assume its a monetary value then the question works.

The aim of this question is to show the confusion around APRs and the real costs of borrowing. Many people often talk about 1,500% APRs being hideous, whereas actually if you’re borrowing over a day it may only be a few pence, something people would say is reasonable, whereas over 10 years it’d be crippling.

For more on this read the How interest rates work guide.

hermoine_2 · 10 March 2009 at 7:22PM

So what is the right answer then?

Lol

H

scottn · 10 March 2009 at 7:42PM

^^^

...:)

savvykaz · 10 March 2009 at 8:02PM

To find the answer

Click in the white space, hold the click and drag the mouse down

(sorry I amended this so not to give the answer away too high up the thread - martin)

McSaver · 11 March 2009 at 1:43AM

I got it correct - although I had the answer as 83,073 % based on a year being 365.25 days

prismcat · 11 March 2009 at 2:00AM

I've got it right, as well. It's 82,593% for 365 days.
It so many people vote for (A) 13.7% ... naive ...

purplegaily · 11 March 2009 at 9:11AM

Wow, that's scary - I actually went too far and went for H.

I wasn't going to work out the math before 9am this morning, but recall APR's are nasty little beggars

Thrifty09 · 11 March 2009 at 10:20AM

This reminds me of the great car tax ripoff.
The DVLA gives you the choice of paying for 12 months in one go, or 6 months now and 6 months later for 10% more. In other words you can pay 100% now, or 55% now and another 55% in 6 months' time. That works out at 49.3% APR!

Waldir · 11 March 2009 at 1:06PM

MSE_Lawrence wrote: »

Now of course, the compounding of this is questionable. It assumes that because you must buy a pint if someone lends you £20, you would thus buy a pint and a half if someone lent you £30. Yet in reality it doesn’t work that way, it’d probably be just another pint. However if we focus on a pint as costing £2.75, and assume its a monetary value then the question works.

Yes, I think the compounding is more than questionable

If you don't repay your friend after a week, I'm sure you'll just buy him a pint and extend the loan for another week (for another pint)
So at the end of the year you can get away for "only" 52 pints (715% APR)

FairyElephant_2 · 11 March 2009 at 1:09PM

teddyco wrote: »

Thrifty09,

I would like to see the abolition of the car tax and only pay 'once' for the tax on a vehicle, when it is purchased new.

I think it would be more fair to abolish car tax and add it to the price of fuel! We are told car tax is to pay for repairs of the roads etc - so that way the people who used the roads more would be paying more for their upkeep!

Anyhow - back on topic - I knew the right answer but clicked vote before I put the dot in the right place, so it came out in the first option - Duh!

Still - this scenario would be cheaper than using many of the cash-machines which charge - some up to £5 per transaction :eek: and most around our way seem to be £3 - not that I ever use them though, I would have to be TOTALLY DESPERATE to do so.
Also, you get to see you mate again next week and have a social drink with them - having a good time with friends is priceless IMHO!

engelsepiet · 11 March 2009 at 1:34PM

....having a good time with friends is priceless IMHO!

Hey, that could make a good credit card commercial! <deadpan>

What's the APR of a ‘pint to say thanks for the cash’? poll discussion

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