Hi darag
To be honest darag I took it that you were just trying to wind me up! And to save you the time I had gone over my posts too! “…difinitive, facination, skeptisism. benfit, installments., regularily, arkward…” We’re all, human.
However, to use the [broken link removed] in the Consumer Credit Act 1995, and solve for “i”, you are required, as I read it, to have the following details:
the loan amount, and the repayment schedule by amount and by time, and the amount of charges, and since the equation is to be solved by “…, by successive approximations…” it is useful to have the quoted APR just to save time.
The examples given in the Act demonstrate that to solve the equation, when charges are involved, you are required to deduct the charges from the loan amount i.e. a loan of €1000 which incurs an administration fee of €50 is, in effect, a loan of €950.
You have said that you could use Excel formula but I have compared results for both Excel and the CC Act formula and there are differences. Some small, some bigger than others. Depending on the loan size the result to the consumer could significantly effect their “values”.
BTW I gave up pissing for lent……I’m pissing for height now!:lol
Dominic
I don’t think we can blame Pat alone for the decisions of the EU for it was their directive that gave us the APR formula.
Reading the Consumer Credit Act 1995, it is obvious that the formula we now have, was not in use across the board even within the EU.
“…COUNCIL DIRECTIVE 87/102/EEC AND COUNCIL DIRECTIVE 90/88/EEC: PART I: COUNCIL DIRECTIVE of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit
Whereas, not later than 1 January 1995, the Commission should present to the Council a report concerning the operation of this Directive,
HAS ADOPTED THIS DIRECTIVE
Article 5: By way of derogation from Articles 3 and 4 (2), and pending a decision on the introduction of a Community method or methods of calculating the annual percentage rate of charge, those Member States which, at the time of notification of this Directive, do not require the annual percentage rate of charge to be shown or which do not have an established method for its calculation, shall at least require the total cost of the credit to the consumer to be indicated…”
And
“…COUNCIL DIRECTIVE of 22 February 1990 amending Directive 87/102/EEC for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (90/88/EEC)
Whereas Article 5 of Council Directive 87/102/EEC(4) provides for the introduction of a Community method or methods of calculating the annual percentage rate of lcharge for consumer credit;
Whereas it is desirable, in order to promote the establishment and functioning the internal market and to ensure that consumers benefit from a high level of protection, that one method of calculating the said annual percentage rate of charge should be used throughout the Community;
Whereas it is desirable, with a view to introducing such a method and in accordance with the definition of the total cost of credit to the consumer, to draw up a single mathematical formula for calculating the annual percentage rate of charge and for determining credit cost items to be used in the calculation by indicating those costs which must not be taken into account;
Whereas, during a traditional period, Member States which prior to the date of notification of this Directive, apply laws which permit the use of another mathematical formula for calculating the annual percentage rate of charge may continue to apply such laws;
Whereas, before expiry of the transitional period and in the light of experience, the Council will, on the basis of a proposal from the Commission, take a decision which will make it possible to apply a single Community mathematical formula;
Whereas it is desirable, whenever necessary, to adopt certain hypotheses for calculating the annual percentage rate of charge;
HAS ADOPTED THIS DIRECTIVE:
Article 1
Directive 87/102/EEC is hereby amended as follows:
1. In Article 1 (2), points (d) and (e) shall be replaced by the following:
'( d ) "total cost of the credit to the consumer" means all the costs, including interest and other charges, which the consumer has to pay for the credit.';
'( e ) "annual percentage rate of charge" means the total cost of the credit to the consumer, expressed as an annual percentage of the amount of the credit granted and calculated in accordance with Article 1a'.
2. The following Article shall be inserted:
'Article 1a
1. ( a ) The annual percentage rate of charge, which shall be that equivalent, on an annual basis, to the present value of all commitments (loans, repayments and charges), future or existing, agreed by the creditor and the borrower, shall be calculated in accordance with the mathematical formula set out in Annex II.
( b ) Four examples of the method of calculation are given in Annex III, by way of illustration….”
The formula in Annex II won’t copy and paste so you’ll have to follow the [broken link removed].
Rainyday
The APR formula, as laid out in the Consumer Credit Act 1995, if it can be applied across ALL financial institutions will provide a valuable basis for “equal” comparison.
To date, no one has been able to interpret/define the CU policy of requiring savings in a way that could be applied within the ACT’s APR formula.
I’m concerned that in my previous examples of interest paid on a €10k CU loan over 3 years (see Cost of CU borrowing 3/4/04), Brendan has worked out that despite the fact that interest paid on the loan by weekly instalments is less than the interest paid on monthly instalments, that the APR works out highest for weekly! There is an anomaly there somewhere!
