Calculate APR from balloon loan

2 thoughts on “Calculate APR from balloon loan”

1. Chris Degnen November 30, -0001 at 12:00 am

   According to the schedule, the monthly interest repayment is

   125 = 10000*15/100/12
   

   The total interest is 24*125 = 3000

   Interest rate calculated from total interest

   3000/10000/24*12*100 = 15%
   

   Interest rate calculated from total payments

   (3000 + 150)/10000/24*12*100 = 15.75%
   

   15.75% can be considered as the APR

   Quoting: APR – Multiple definitions

   • Laws vary as to whether fees must be included in APR calculations.
2. DJohnM November 30, -0001 at 12:00 am

   The acronym APR is ambiguous, especially given that the loan in question is denominated in Euros. This site, https://en.wikipedia.org/wiki/Annual_percentage_rate#Multiple_definitions_of_effective_APR, gives definitions for both the US and the EU. From the repayment schedule given, it is clear that:

   1. The lender is charging a nominal interest rate of 15% per year, with monthly compounding, or 1.25% per month. The with monthly compounding should have been included in the specification of the loan; the quoted interest rate of 15% is meaningless without it. The compounding period could only be inferred from the payment schedule.

   2. An single initial deposit of $100, left to earn interest of 1.25% per month compounded monthly for 12 months would grow to 100 x (1.0125)^12 or $116.075. The same $100 left to grow for 1 year at 16.075% compounding annually would grow to the same amount. Thus, the effective annual interest rate for the loan described is 16.075%