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7-6 HOW DO WE DETERMINE THE ANNUAL PERCENTAGE RATE (APR)? 1.If you know the number of monthly payments and the finance charge per $100 of the amount financed, you can use a table to find the annual percentage rate of the loan. 2.You can use the APR of Loans to compare the relative cost of borrowing money. Finance Charge per $100= $100 x Finance Charge/Amount Financed 1 LET’s PRACTICE Paul Norris obtained an installment loan of $1500 to pay for his radio equipment. The finance charge is $146.25. He agreed to repay the loan in 18 monthly payments. What is the annual percentage rate? APR 10.00% 10.25% 10.50% 10.75% 11.00% 11.25% 11.50% 11.75% 12.00% 12.25% $3.53 6.62 9.77 12.98 $3.60 6.76 9.98 13.26 12.5% Finance Charge Per $100 of Amount Financed Term 6 12 18 24 $2.94 5.50 8.10 10.75 $3.01 5.64 8.31 11.02 $3.08 5.78 8.52 11.30 $3.16 5.92 8.73 11.58 $3.23 6.06 8.93 11.86 $3.31 6.20 9.14 12.14 $3.38 6.34 9.35 12.42 $3.45 6.48 9.56 12.70 Find the finance charge per $100. ($100 x (Finance Charge/Amount Financed) $100 x ($146.25/$1500.00) = $9.75 finance charge per $100 Find the APR. (Refer to the table above) In the row for 18 payments, find the number closest to $9.75. It is $9.77. Read the APR at the top of the column. APR is 12.00%. 2 $3.68 6.90 10.19 13.54 7-7 Refund of Finance Charge • 1. If you repay an installment loan that is not a simple interest installment loan before the final due date, you may be entitled to a refund of part of the finance charge. 2. The refund is usually stated as a percent of the finance charge. • Refund = Finance Charge X Percent Refund 3 LET’s PRACTICE • Viola Stambaugh had a 12-month installment loan. The total finance charge on the loan was $113.80. How much was Viola’s refund if she paid off the loan with the 7th payment? • Find the percent refund from table. 19.23% Find the Refund. (Finance Charge X Percent Refund) $113.80 X 19.23% = $21.88 refund Term of Loan Number of Months Loan Has Run 1 2 3 4 5 6 7 3 50.00 16.67 0 6 71.43 47.62 28.57 14.29 4.76 0 9 80.00 62.22 46.67 33.33 22.22 13.33 6.67 12 84.62 70.51 57.69 46.15 35.90 26.92 19.23 15 87.50 75.83 65.00 55.00 45.83 37.50 30.00 4