Are you APR aware? Poll results & discussion

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Comments

  • I'm quite pleased about getting this one right, after a bit of spluttering...£1 in a day!!!!

    No thanks!
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  • iosson
    iosson Posts: 9 Forumite
    I can't accept the stated correct answer:

    The proposed contract was:
    You lend me £10 today, I will repay you £11 tomorrow.
    Providing I repay the debt tomorrow, the contract is completed. There is no mention of ongoing penalties/interest if I fail to repay the loan - so it is not possible or fair to extrapolate what costs might be incurred.

    So cost of loan (interest) is £1 (on a sum of £10) and this value is 10% whether considered over 1 day or 1 year. It only changes if other charges are being made.
    "Annual Percentage Rate (APR) is an expression of the effective interest rate that the borrower will pay on a loan, taking into account one-time fees and standardizing the way the rate is expressed. In other words the APR is the total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options" (wikipedia)
    I wouldn't normally be this picky - but when the survey is being used as a headline about how financially illiterate we are, I do think the answer should be right!

    Neil
  • Biggles
    Biggles Posts: 8,209
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    iosson wrote: »
    I wouldn't normally be this picky - but when the survey is being used as a headline about how financially illiterate we are, I do think the answer should be right!
    I agree entirely.

    In the definition, note the words 'expressed as an annual percentage of the amount of credit'. 10% per day is not an annual percentage.
  • Harvs98
    Harvs98 Posts: 27 Forumite
    Martin Says:
    "borrow for a short time and a high APR is a small amount, yet borrow for a long time and a low APR is massive. Scarily, it's this mathmatical confusion that allows consolidation lenders use to say “it only costs 10%” yet as you’re borrowing over 25 years costs a fortune."


    If borrowing for a long time at a low APR is bad, does this mean it is better to borrow for a long time at a high APR? I dont understand, I thought it would be better to have as low an APR as possible?

    Sorry, maths was never my strong point.
  • MSE_Martin
    MSE_Martin Posts: 8,272
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    Harvs98 wrote: »
    Martin Says:


    If borrowing for a long time at a low APR is bad, does this mean it is better to borrow for a long time at a high APR? I dont understand, I thought it would be better to have as low an APR as possible?

    Sorry, maths was never my strong point.

    Nope the point is EVEN a low APR over a long time is very costly; a high APR would cost you an enormous amount.
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
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