Posted by ReneeK/MI on March 24, 2009, 5:13 am, in reply to "Keep going, Renee!"
68.43.29.109
Well, not apples or oranges – but TV commercials.
I always first ask “Do you understand how an APR is calculated?” If they say yes, no need for me to go further. Most people do not, and most of them respond with “Not really, but I’d like to.”
I have trained a lot of lending people on APR calculations, and I’ve found that the whole concept is really befuddling to MOST people. I’ve found that giving a visual cue helps A LOT, and giving something people can easily relate this to makes a huge difference. Here’s how I explain it:
“You’ve seen commercials on TV where they say “ZERO interest!” and in tiny text at the bottom of the screen, it says “7% APR …”
I use that as my lead-in, because across the board, people instantly RELATE to that, they have all seen this and wondered about it, I get enthusiastic head-nodding, it ‘sets the stage’ for the explanation (lol – I guess it’s a bit ‘Caesar Milan-ish’?!) …
“Well, they could give you a loan WITH interest, and WITHOUT charging any up-front fees – and it could be a wash, right?” People get this.
“The APR combines the actual interest rate WITH those up-front fees, making it one number. It is calculated by taking the actual dollars in interest that you will pay over the life of the loan (I spread my hands apart to show a visual of this), and adding into that the dollars of finance charges you are paying to GET the loan (I spread my right hand just a little farther). This entire sum is then recalculated backwards (I bring my right hand to meet my left), as if ALL the dollars were actually interest – what would the interest rate be.” Light-bulbs go off.
NOW – this is seriously simplified, and the APR is something that could be talked about for days on end, but I’m really not there to provide them with a PhD in this. My APR ‘speech’ takes about a minute and a half, and people UNDERSTAND.
Message Thread:
« Back to thread