Working out an APR

Sunday_Morning

After four years of leasing a car, the firm have sent me, at my request, an option to lease it for a further year.

The figures I have are as follows...

Current purchase price... £5,298.65

OR

Twelve months at £166.06 per month repayment PLUS £78.03 maintenance

Final payment £3,974.25

Now these terms are far to extortianate for me to contemplate. But I don't blame the company...I know full well that they are not really in the business of leasing beyond four years.

What I'm curious about however is the APR.

To my mind this equates to a loan of 1,324.40 (the difference in pay off amounts) at 166.06 a month.

How would I work out what the APR is for this?

Sunday_Morning

albertross wrote: »

100-123.5% (depending on payment timings) roughly (ignoring the £78 maintenance)

(((12*166.06/1324.4)-1)/*2)*100

I reckon the answer to be around 25% based on your formula.

But here's where I expose my lack of understanding of this whole APR business and how it differs from the annual rate of interest.

If I borrow the amount x for a year and the rate of y then I'd expect to pay back at the end of the year the amount of x + x*y. Let's call that z...therefore z = x + xy.

Now...from my dodgy recollection of algebra.. that would mean y =(z-x)/ x

So..in my case I'm borrowing 1,324.40 at the beginning of the year and by the end of the year I've paid back 12*166.06....1,992.76 (excluding maintenance)

Therefore my rate y = (1,992.76-1324.40)/1324.40...which gives me a figure of over 50%!

Now I actually would consider the true rate to be more than this, since by paying back monthly amounts, I'm not effectively borrowing all the amount for a year but am instead borrowing the amount of my first payment (less the interest included within it) for I month only and likewise the second payment for two months only and so on. The actual amount I borrow for the entire year is only really the amount of the last instalment!

It's obvious that I am on the wrong track here...I just don't see where!! Some help in the form of pointing out where I fall down logically would be much appreciated!