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    MSE Lawrence
    What's the APR of a ‘pint to say thanks for the cash’? poll discussion
    • #1
    • 10th Mar 09, 3:07 PM
    What's the APR of a ‘pint to say thanks for the cash’? poll discussion 10th Mar 09 at 3:07 PM
    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% - 31% (3033 votes)
    B. 82% - 6% (611 votes)
    C. 275% - 12% (1176 votes)
    D. 137% - 11% (1069 votes)
    E. 2,750% - 17% (1665 votes)
    F. 13,700% - 9% (922 votes)
    G. 82,000% - 7% (671 votes)
    H. 275,000% - 4% (371 votes)
    I. 1.37 million % - 4% (406 votes)

    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.

    Spoiler (highlight below to view):
    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.
    Last edited by MSE Lawrence; 16-03-2009 at 5:13 PM.
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