APR vs Flat Rate Calculations

Are you saying those are HIS repayments? They aren't exactly the AA ones, but they are almost identical, and that would suggest that his rate is indeed the 6.3% APR that he quotes.

2.99% flat is consistent with 6.3% APR.

Have you considered that he may genuinely be getting some manufacturer sponsored low interest rate on his bike? It does happen.

I'd be dissapointed if a family member borrowed that sort of money but I wouldn't get stressed or wound up about it. There's ultimately nothing wrong with a loan at a fairly decent rate of interest to buy something tangible. This isn't like taking out a consolidation loan to pay off credit cards and the like, for which there is usually little to show.

I'd leave it for six months then quietly find out if your brother is making the payments without any problems, not running up CC bills on top or generally financially deteriorating. If not thats fine. If there are problems you can be in a position to give considered advice.
Regards



X

Is it not an explanation of how the 3% Flat Rate equaters to an AER of 6% rather than to an APR which is a bird of a different plumage.

I thought that AER and APR are conceptually very similar ....

An "AER" is usually used to describe savings accounts, rather than loans. It's the amount of interest you'd have on your balance after a year, if you redeposited any mid-year interest payments you'd received, and interest was compounded through to the end of the year.

"APR" is used to describe loans - not savings - but it's a comparable way of describing the cost of borrowing. Interest is treated as compounded for the purpose of APR calculations, even if they're not compounded in practice. And all fees are treated as though they're an interest payment.

Put it another way - if you could take a loan advance and put it straight into a savings account, and make all the loan repayments directly out of that savings account - and the APR of the loan and AER of the savings account were the same - then, when the loan term is finished, the savings account balance should be zero. If the savings AER is bigger than the loan APR, then you should have some money left over - technically, this is known as "stoozing". But in practice, savings AER's are usually smaller than loan APR's.

Correct me if I'm wrong on that, anyone.

Anyway - I think that when grumbler said AER, he probably meant APR. And like MMD says, grumbler's explained a good, simple way of getting the approximate APR from the flat rate.

Banks prefer to quote the AER because it's the only valid basis for comparison, Paul, not just because it's higher.

And I ignore the distinction between AER and APR - to anyone but a pedant, the difference doesn't matter. Both are the IRR (internal rate of return) of the cashflows, but AER is for savings and APR is for loans in general UK usage.