Posted by LindaH
on March 26, 2009, 8:17 am, in reply to "=) Game on, Craig!"
72.171.0.141
--Previous Message--
: I’m sincerely intending this as a
: professional discussion, Craig – we
: don’t often get to engage in such
: meaty topics, and I enjoy shop-talk
: (i.e. I’m not ‘ arguing ’ but
: discussing!)
:
: I understand (of course) that the APR
: includes interest and loan costs, and
: that it is “expressed as an annual
: rate” as opposed to a daily, weekly or
: monthly rate – which you are correct
: in correcting, technically I believe
: this is “annualized”, but I certainly
: am not going there with the average
: consumer.
:
: I also think the APR is a pretty
: useless tool for a couple reasons –
: one, because it’s so difficult to
: understand and two, because all things
: need to be ‘equalized’ for a true
: comparison – and the rules don’t
: ensure that. For example, not all
: lenders include the same fees
: (subjective interpretation of the
: TILA), and not all lenders use
: identical methodology for other
: calculations (360/365 days, interest
: compounding daily/weekly/monthly,
: differing amortization methods allowed
: in APR calculations, etc).
:
: Real world calculations (all other
: things being equal):
: 100,000 loan w/ 5% interest, $3k in
: costs, 30 yr fixed: APR is 5.262
: Same loan, 20 year fixed: APR is
: 5.356. Again at 15 years fixed, the
: APR is 5.452. The term will always
: affect the APR, because it is a part
: of the calculation formula.
:
: While consumers need to consider how
: long they may intend to hold the loan
: when comparing products, the APR does
: not. The APR calculations are
: amortized over the entire loan term,
: re-calculated and expressed as an
: annual (annualized!) rate. (The
: actual formulas allowed are included
: in the TILA.) I’m pretty curious
: where you’re getting the 7 year
: calculations?
:
: All of this being the reason behind my
: initial statements – the APR could be
: picked apart and discussed for … well,
: forever, and my explanation to
: consumers is/was admittedly highly
: simplified, BUT I stand by my
: understanding of it being correct in
: simplified concept and not at all
: misleading to the average consumer.
:
: Engaging topic, and I do hope you also
: appreciate the discussion and won’t
: personalize it. =)
:
:
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