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• FIRST POST
Former MSE Lawrence
The following Poll ran between 08-16 Oct 07..... The Results are included

How good is your knowledge of APRs? If someone lent you £10 and said: "give it me back tomorrow and a pound on top", roughly what Annual Percentage Interest Rate would this be? (don’t use a calculator, go on instinct).

A. 1% - 4% (367 votes)
B. 5% - 2% (162 votes)
C. 10% - 34% (2977 votes)
D. 25% - 2% (134 votes)
E. 50% - 4% (360 votes)
F. 100% - 4% (384 votes)
G. 250% - 3% (285 votes)
H. 500% - 7% (648 votes)
I. 1,000% - 23% (2055 votes)
J. 1,000,000% - 10% (902 votes)
K. 10 billion % - 2% (140 votes)
M. More than the stars in the sky - 5% (403 votes)

What's the answer? Explanation from Martin:

This poll asked “if someone lent you £10 and said give me £11 back tomorrow’ what would the Annual Percentage Rate be? A third of you thought the answer was 10% and another third 1,000%. Yet only 5% got it right, the correct option was ‘more than the stars in the sky’ as the answer’s 1,283,305,580,313,352% APR.

This is because £1 on £10 is a 10% daily rate, compounded over a year and this escalates massively. Yet this confusion is a worry. While borrow for a short time and a high APR is cheap, the real danger is borrow for a long time and a low APR is expensive. It’s this bit of maths that consolidation lenders use to say “it only costs 10%” yet as you’re borrowing over 25 years you’ll repay a fortune.

Comment or discuss by clicking reply

This vote has now ended, but you can still click reply to discuss below. Thanks to everybody that voted. Remember some of the earlier comments were made while the vote was still running.

Last edited by MSE Martin; 16-10-2007 at 6:30 PM.
Page 1
• Liney
Ooo I want to know the correct answer now...
Remember its nice to be nice and its good to share!

Those that mind don't matter, and those that matter don't mind!

Before printing, think about the environment!
• ajgunn
I had a guess at 1000,000 but then worked it out - geeeeeeeeeeee !
• ajgunn
I might be wrong but daily rate is 10% so APR is 100*[(1+D/100)^365-1], where D is the daily rate so 100*[1.1^365-1] = 1.28E17, that's 128,000,000,000,000,000% !!!! Lots of stars in sky.
• steviebilbo
• 8th Oct 07, 8:54 PM
• 32 Posts
• 6 Thanks
steviebilbo
I reckon its 10% per day so thats 10 to the power of 365 or in other words ... 10 x 10 another 364 times and that really is as much as there are stars in the sky. Lending at that rate is a business I really would be interested (no pun intended) in!

Better to be silent and considered a fool than to open one's mouth and remove all doubt! :rolleyes:
• ajgunn
That's 10 to the power 348 more than me. Even for some store cards that's way over the top !!
• Coveredinbees!!!!
• 9th Oct 07, 8:25 AM
• 3,183 Posts
• 1,966 Thanks
Coveredinbees!!!!
I went with 1 million as I didn't know how to actually work it out. In retrospect a rubbish guess

• MrLew
• By MrLew 9th Oct 07, 1:16 PM
• 81 Posts
• 18 Thanks
MrLew
Wow, just shows how little we know ! (me included).

I guessed at 1000% (without compounding the interest which i guess is wrong) but when compounded the answer is astronomical (literally):

128,330,558,031,335,000%

So the answer must be M - more than the stars in the sky

This means if you didn't pay them back for a year you would owe them:
£12,833,055,803,133,500

Even if the interest rate was 1% per day the APR would equate to well over 3,000% ! and the debt at the end of the year would be £378

Anyone wanna borrow a tenner off me at 10% interest per day ?

• redux
• By redux 9th Oct 07, 1:34 PM
• 19,781 Posts
• 27,533 Thanks
redux
almost but not quite as bad as the one about doubling for each square on a chessboard
• pkempc
• By pkempc 9th Oct 07, 2:47 PM
• 123 Posts
• 41 Thanks
pkempc
If the £10 debt was repaid with £1 interest on top after one day then the flat rate of interest is 10%.

If, over the course of a year, that single £10 for a day was all you borrowed and you only paid the single £1 interest charge then the Annual Percentage Rate is £1 ÷ £10 = 0.1 x 100 = 10% APR.

However, if immediately after repaying the £10 you then borrowed another £10 and paid that back the next day with £1 interest and then repeated this every day for the next year then you would pay a total of £365 (£366 in a leap year) in interest for a daily loan facility of just £10.

The Annual Percentage Rate could then be calculated as £365 ÷ £10 = 36.5 x 100 = 3,650% APR.

However, this APR figure doesn't take into account any compounding of interest, loan application fees, reservation fees, fees for not paying by direct debit, penalties for late payment or early settlement, loan discharge fees or any other fees the lender can get away with!
• teddyco
I can't believe 47% of the people said it was an APR of 10%.

Maybe that's why so many folks don't bother to read the fine print of most
banking contracts and they continue to get 'slammed'!
• vnice
if 3,650% is the answer why is that not one of the options?

when are we going to be told the answer?
• dillydilly
• 9th Oct 07, 6:52 PM
• 169 Posts
• 133 Thanks
dillydilly
they say there are more stars in the sky than there are grains of sand on the earth, so I would guess if this is the answer the interest payment would be somewhat more than £1
• st8ve
"give it me back tomorrow and a pound on top",

if you pay off the loan and interest in one day then the total paid back is £11, 10% APR, it's a trick question, forget compound interest etc, you paid the loan and interest in one day...
• toshkininny
• 9th Oct 07, 7:34 PM
• 1,138 Posts
• 624 Thanks
toshkininny
If someone lent you £10 and said: "give it me back tomorrow and a pound on top",

.......... I'd tell them where to go!
• MSE Martin
• 9th Oct 07, 10:29 PM
• 8,116 Posts
• 42,310 Thanks
MSE Martin
Some interesting responses.

One thing to remember (especially St8ve) is APR stands for ANNUAL percentage rate
Martin Lewis, Money Saving Expert.

Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

Debt-Free Wannabee Official Nerd Club: (Honorary) Members number 000
• wishiwasarichgirl
• 9th Oct 07, 10:33 PM
• 5,386 Posts
• 6,335 Thanks
wishiwasarichgirl
but if you didn't pay your mate back the next day, but a few days later, would they want a pound extra per day, or still just the £11? That wasn't in the initial agreement (In fact, if it was a year later, would they still be expecting it back at all!) I think we need to see the small print first
WigglyFB

• Contains Mild Peril
• 9th Oct 07, 11:57 PM
• 4,058 Posts
• 2,830 Thanks
Contains Mild Peril
I think we need to see the small print first
Originally posted by wishiwasarichgirl
Best answer yet, and always the important thing with loan agreements.
Based in the information given, the equivalent APR is 3650%. Since this isn't one of the poll options, I suppose we're meant to base our answers on compound interest, but if the loan and interest are repaid in one day as agreed, that doesn't apply to this case.
• craig86
• By craig86 10th Oct 07, 12:00 AM
• 45 Posts
• 18 Thanks
craig86
You pay effective interest of 10% per day, so after 365 days you would owe:

£10 * (1 + 0.1) ^ 365 = £1.28 x 10 ^ 16

(that's £12.8 million billion!).

The APR is:

((1 + 0.1) ^ 365 - 1) * 100% = 1.28 x 10 ^ 17 per cent

(There are about 10^21 stars in the universe.)
Last edited by craig86; 10-10-2007 at 12:26 AM.
• lethal0r
interesting points. i was thinking like 1000%, would never have thought you could get so high APR from £10 in one year! just goes to show you how a salesperson could word something cleverly over the phone to make a poor APR sound good. always check the smallprint!