Hi everyone.

I require some help on calculating an AER. My business provides 90 day loans to borrowers. There are 2 variables that are taken into account when calculating the interest rate they are charged:

1) An annual interest rate (5%)
2) A one off fee per loan of 0.25% (This is an administration fee)

I would like to be able to provide borrowers an AER. They are provided a revolving credit facility (like an overdraft) and they can 'draw down' from this facility in any denomination they wish, providing it is within the overall credit limit. The one off fee is payable per draw down, the interest rate is charged on an uncompounded daily basis (5%/365 x T) for outstanding balance.

When calculating the AER how do I account for the one off fee? In theory, because the 0.25% is payable per loan per 90 days, they could do 4 (365/90) loans per year so should I add 1% (.25%x4) to the interest rate an provide an AER of 6%, or is it simply 5.25%? It is further complicated as they are provided a revolving credit facility, so they could do 4 draw downs a year (each of £100k and paying back on day 90), or they could do 10 transactions per 90 days each of £10k (and they would pay 0.25% per transaction. Would I then have to add 10% (0.25% x 10 x 4times a yr) to the interest rate of 5%?

Any help greatly appreciated and if I have omitted any information please let me know.

Thank you .