Flat Rate vs APR

andy777_2

Does anyone have a clever spreadsheet that shows the relationship between a flat interest rate and the APR?

Thanks!

Robert_Sterling

There is no consistent connection between a Flat Rate and an APR because of the way in which an APR is defined by the Consumer Credit Act of 1974.

For a given flat rate you could have a spreadsheet connecting Flat Rates to AERs.

The AER can approach double the Flat Rate.

Anybody offering credit has to tell you the APR anyway.

grumbler

Excel formula for APR is

=RATE(m, -pr*(1/m+fr/12), pr)*12

Here:
m - number of months,
pr - principal of the loan
fr - flat rate

Example: =RATE(24, -10000*(1/24+2.646%/12), 10000)*12 = 5%

Excel formula for flat rate is

=(-PMT(apr/12,m,pr)*m/pr-1)/m*12

Here 'apr' is APR.

Example: =(-PMT(5%/12,24,10000)*24/10000-1)/24*12 = 2.646%

Months >12_____24_____36_____48
APR___flat___flat___flat___flat
4%___2.18%__2.11%__2.10%__2.09%
5%___2.73%__2.65%__2.63%__2.64%
6%___3.28%__3.18%__3.17%__3.18%
7%___3.83%__3.73%__3.72%__3.74%
8%___4.39%__4.27%__4.27%__4.30%
9%___4.94%__4.82%__4.83%__4.86%
10%__5.50%__5.37%__5.39%__5.44%
11%__6.06%__5.93%__5.95%__6.01%
12%__6.62%__6.49%__6.52%__6.60%
13%__7.18%__7.05%__7.10%__7.19%
14%__7.74%__7.62%__7.68%__7.79%
15%__8.31%__8.18%__8.27%__8.40%
16%__8.88%__8.76%__8.86%__9.01%
17%__9.45%__9.33%__9.45%__9.63%
18%_10.02%__9.91%_10.05%_10.25%
19%_10.59%_10.49%_10.65%_10.88%
20%_11.16%_11.07%_11.26%_11.52%

See also: Interest Rates: Everything you ever wanted to know!

Robert_Sterling

I may be wrong but .....

Once again in the above post it appears to me that APR is being used incorrectly where AER should be used.

It is possible for the APR to equal the AER but whereas AER is a mathematical concept the APR has to be arrived at in accordance with the consumer credit act of 1974 and is usually higher than the AER.

grumbler

Robert_Sterling wrote:

Once again in the above post it appears to me that APR is being used incorrectly where AER should be used.

Robert, do you mean EAR? AER is usually used for savings ...

It is possible for the APR to equal the AER but whereas AER is a mathematical concept the APR has to be arrived at in accordance with the consumer credit act of 1974 and is usually higher than the AER.

It is a mystery for me too why all online calculators I know calculate monthly rate as APR/12. My understanding is that monthly rate should be (1+APR/100)^(1/12)-1. Is it what you mean?