View Full Version : Apr (In the uk)
marktev
Mar 20, 2007, 07:50 AM
What is the formula used to calculate the annual percent rate as used in the UK?
I believe that logarithms are used. Thank you.
Capuchin
Mar 20, 2007, 07:53 AM
Have a read here:
Annual percentage rate - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/Annual_percentage_rate#European_Union)
I don't really understand it but I think it will help you :)
Dr D
Mar 20, 2007, 10:48 AM
Capuchin's link obviously provided the answer you were looking for. I have been away from school for too many years to juggle the formulas any more and now rely on my HP-12C or laptop. I would think that APR calculations in the UK and the US should be the same?? The main purpose of APR is to factor prepaid finance charges into the total cost of credit over the life of the loan. The following would be a mortgage eample. Take a $100,000, 30 year fixed rate mortgage at 6.000% interest with $3000 up front finance fees. The monthly payment to repay the $100 K is $599.55/mo. Using my HP, $97,000 is the actual Present Value; -$599.55 the Payment; 360 months the term. Solving for Interest Rate we get 6.2865% APR. Since politicians arbitrarily decide which costs to include or exclude from Prepaid Finance Charges, and because these figures can be manipulated by the lender, the APR is less than a good gauge to compare loans.
Capuchin
Mar 20, 2007, 10:56 AM
Hi Dr D, if you did read the link, it states
The method used to calculate APRs in the EU and UK is different from that used in the US and will often produce different (higher) results. This is because the US method (regulation 'Zee') produces what would, in the UK, be called a nominal annual rate whereas the UK/EU method results in an effective annual rate.
I don't know what that means but... yeah