APR or Nominal rate for calc repayments

B

BIG

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Hi,
I borrowed 17K 4 yrs ago over a 5 year term. I negotiated an interest rate of 3.31% but i recently checked the credit agreement and the APR was also quoted as 6.53%. Why is there such a difference between the two?

And did it make any diiference getting such a good nominal rate as the repayments appear to be based on the APR anyway?

Thanks
 
The APR takes into account various details such as how the nominal rate is applied, other charges etc. It or cost per thousand are the only meaningful figures with which to compare different loan offerings. The APR is the real cost of credit so 6.53% is what it is costing you and not 3.31%.
 
Sounds like the rate quoted to you may have been a "flat rate" i.e. the rate is quoted on the principal sum, not on the decreasing balance. This method of quoting is sometimes used by finance companies on car financing. In such arrangement the APR is just less than twice the quoted rate.

Check if the total repayments are €17k + (€17k x 3.31% x 5) and the monthly repayment is 1/60 of that amount. This indicates a flat rate.

Would advise that you also check that it's not a HP or lease agreement.
 
Thanks Gulliver,
Using your calcs, it was a "flat rate" i was quoted.
Is this right to charge interest on the full amount even though i am reducing the balance every month?
I suppose i cant complain as it was a good rate to get 4 yrs ago, just not as good as i thought.
 
Any chance this is a NIB loan?

They are the only lender I have seen quoting flat rates on their website.
 
How does quoting such flat rates tally with the mandatory requirement to provide APRs on loans?
 
ClubMan said:
How does quoting such flat rates tally with the mandatory requirement to provide APRs on loans?
Click to expand...

Here is the relevant section of Section 21 of Consumer Credit Act 1995:-

21.—(1) An advertisement in which a person offers to provide or arrange the provision of credit shall, if mentioning a rate of interest, contain a clear and prominent statement of the APR, using a representative example if no other means is practicable, and no other rate of interest shall be included in the advertisement.
(2) The statement of the APR included in any advertisement to which subsection (1) applies shall be afforded in the advertisement no less prominence than a statement relating to—
  • ( a ) any period over which payment is to be made,
  • ( b ) the amount of any advance payment or the fact that no advance payment is required, and
  • ( c ) the amount, number or frequency of any other payments or charges (other than the cash price of the goods or services) or of any repayments.
(3) An advertisement (other than one relating to a housing loan) shall, where the credit offered is subject to conditions involving the payment of any charges other than the repayment of capital and interest on the sum borrowed, specify those conditions.
(4) An advertisement shall, if any security is required or is required in specific circumstances in relation to the credit offered, state that such security is required.
(5) Notwithstanding section 7 of the Consumer Information Act, 1978, it shall not be an offence for a person to provide credit at a lower rate than the rate advertised.
(6) Where an advertisement refers to the availability of credit and the credit is subject to any restrictions, those restrictions shall be clearly indicated.
 
It is AIB not NIB. The APR is quoted at the top of credit agreement, its the at the bottom where you sign there is box saying interest rate =x%.
My only problem is that i didnt realise this was a flat rate on the intial balance and not a rate on a reducing balance
 
It is AIB not NIB. The APR is quoted at the top of credit agreement, its the at the bottom where you sign there is box saying interest rate =x%.
My only problem is that i didnt realise this was a flat rate on the intial balance and not a rate on a reducing balance.
 
There is no legal specification of how interest should be calculated or applied. That is exactly why the APR was introduced.
 
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