topic Re: I don't know how APR works. in Credit Cards

I don't know how APR works.

Booner72 — Fri, 23 Dec 2011 17:01:13 GMT

Sorry to be dumb here. But I thought that if I owed 100 dollars on a card, and my interest rate is 25% for a store card, that my interest if I didn't PIF would be 25.00 for that month.

However, I notice it says A PR as in ANNUAL. Does that mean its 25 a YEAR for every 100 not paid? But what if you only carry the hundred 6 months?

Thanks for the math lesson!

Re: I don't know how APR works.

Juan123 — Fri, 23 Dec 2011 17:12:49 GMT

i think it would be $100 x 25% / 12 (for the 12 months) so it'd be like $2 interest every month.... unless im mistaken >_<

if you dont carry it i guess they prorate it? im not 100% sure im just guessing.

Re: I don't know how APR works.

Anonymous — Fri, 23 Dec 2011 17:17:35 GMT

($100 x .25) / (1/12) for one month
($100 x .25) / (3/12) for 3 months
($100 x .25) / (6/12) for 6 months. On and on. Thats 25% apr

Re: I don't know how APR works.

Anonymous — Fri, 23 Dec 2011 17:16:53 GMT

You are correct (kinda). APR = Annual Percentage Rate. So if you carry a $100 for a year, you will end up with $25 in interest charges for the YEAR.

To calculate your monthly interest, take your balance (technically, your average daily balance, or ADB, but that complicates it more than necessary for this example), and multiply it by your APR/365*30 (Annual interest/days per year = daily interest rate, times the number of days in the billing cycle [30 on average]). So $100*0.25/365*30 = $2.05 interest for the month. So in your example, if you only did it for 6 months then paid it off in full, you get $100*.025/365*30*6= $12.33 (oversimplified calculation, as you would be making payments along the way, but for a basic overview, it is close enough).

Look at the bottom of your CC statement and you should see a similar calculation each month.

Re: I don't know how APR works.

Anonymous — Fri, 23 Dec 2011 17:18:29 GMT

Here's how I do it. Make the 25% into a decimal. That's .25

Then divide that by 365 for the days in the year. The result is: well, you'll see it on the calculator but it's too long to print here because it has an "e" in it on my calculator.

Multiply that result by the number of days in the billing cycle (some cycles are 28 days, some are 30, and some are 31.) Let's say 30, and the result is 0.02

Take your average daily balance (that's how most but I guess not all, companies compute interest.) Let's say it's $100, and multiply it by the result above...

And your answer is $2.05.

So you should be charged that much in interest for the month.

Re: I don't know how APR works.

Booner72 — Fri, 23 Dec 2011 17:29:28 GMT

OOOOOOH!!!!!!!!!!!!!!!!!!!! I GET IT NOW!!!!!!!!!!!!

Wow, well that's good news, then. JEEZ. I've been freakin out about DH's Lowe's bill that has about 250 on it and I thought we were going to pay over 50 dollars a month in INTEREST for it. What a relief.

i think I got this bc our truck was at 24.99% until we refi'd and I knew that was 25.00 per 100 per month. So auto loans do it different, then? They call it "simple interest?"

THANKS YOU GUYS

Re: I don't know how APR works.

GregB — Fri, 23 Dec 2011 20:10:25 GMT

24.99% on a car is still 24.99% per year or 2.0825% per month, which is a horrendous interest rate.

Re: I don't know how APR works.

Anonymous — Fri, 23 Dec 2011 20:21:31 GMT

Installment loans (like a car loan) often load up the interest in the beginning of the loan. It decreases over time and by the end of the loan, more principal than interest is being paid. Look up "amortization schedule" to learn more about that. That's completely different than interest on revolving debt like credit cards.

Re: I don't know how APR works.

Booner72 — Fri, 23 Dec 2011 20:40:20 GMT

@GregB wrote:
24.99% on a car is still 24.99% per year or 2.0825% per month, which is a horrendous interest rate.

Really? I thought that was a pretty good deal.

Re: I don't know how APR works.

Anonymous — Fri, 23 Dec 2011 20:42:20 GMT

@Booner72 wrote:
@GregB wrote:
24.99% on a car is still 24.99% per year or 2.0825% per month, which is a horrendous interest rate.

Really? I thought that was a pretty good deal.

25%? passes out and hits the foor

Re: I don't know how APR works.

laz98 — Fri, 23 Dec 2011 21:00:04 GMT

@Anonymous wrote:
@Booner72 wrote:
@GregB wrote:
24.99% on a car is still 24.99% per year or 2.0825% per month, which is a horrendous interest rate.
Really? I thought that was a pretty good deal.
25%? passes out and hits the foor

any room on the floor for me?

Re: I don't know how APR works.

Anonymous — Fri, 23 Dec 2011 21:03:41 GMT

@laz98 wrote:
@Anonymous wrote:
@Booner72 wrote:
@GregB wrote:
24.99% on a car is still 24.99% per year or 2.0825% per month, which is a horrendous interest rate.
Really? I thought that was a pretty good deal.
25%? passes out and hits the foor
any room on the floor for me?

sure snuggle up

Re: I don't know how APR works.

steve23111 — Sat, 24 Dec 2011 03:02:44 GMT

@Anonymous wrote:
@Booner72 wrote:
@GregB wrote:
24.99% on a car is still 24.99% per year or 2.0825% per month, which is a horrendous interest rate.

Really? I thought that was a pretty good deal.

25%? passes out and hits the foor

I know, right? I know it was back in 2005 but less than 3 years out of Chapter 7 and hardly on the road to rebuilding I financed a car through Capital One for 8.95% APR, and THAT was steep at the time!

Re: I don't know how APR works.

Anonymous — Sat, 24 Dec 2011 03:05:51 GMT

@Booner72 wrote:
OOOOOOH!!!!!!!!!!!!!!!!!!!! I GET IT NOW!!!!!!!!!!!!

Wow, well that's good news, then. JEEZ. I've been freakin out about DH's Lowe's bill that has about 250 on it and I thought we were going to pay over 50 dollars a month in INTEREST for it. What a relief.

i think I got this bc our truck was at 24.99% until we refi'd and I knew that was 25.00 per 100 per month. So auto loans do it different, then? They call it "simple interest?"

THANKS YOU GUYS

APR is APR, it's your annual percentage rate. Others explained how to calculate it, but I've always found it easier to just divide your APR by 12, and that gives you the monthly interest percent you'll be paying (well, close enough).

24.99% APR on a car loan is awful, though. If you have short/bad credit, you have to take what you can get, but keep in mind that a lot of banks/credit unions offer 1.99-2.99% interest on cars. You'd have to have pretty good credit to qualify for that that low, but 5-8% would be reasonable. 25% is really subprime, you were getting majorly ripped off. I'm glad you refinanced it.

Re: I don't know how APR works.

Booner72 — Sun, 25 Dec 2011 20:01:15 GMT

I was kidding. I know 24.9 is terrible. We refi'd at 6.9. I know that's not super but a ton better than 25!

Bought a new subie and got a rate of 5.24%. My credit has drastically improved since I found this forum.

So thanks everyone, and MERRY CHRISTMAS!!

Re: I don't know how APR works.

CreditCrusader — Sun, 25 Dec 2011 20:23:06 GMT

Easiest way for me to compute and figure APR is as follows:

Ex:

APR 22.9%, $300 balance subject to interest

That is the ANNUAL percentage rate...to make that monthly, divide it by 12 (as in 12 months in a year):

22.9/12 = 1.908% monthly rate

Now, divide that monthly rate by 100 to arrive at the actual interest multiplier that is matched against your balance:

1.908/100 = 0.01908

0.01908 x 300 = $5.72 in interest for that billing cycle.

What can I tell you...I'm a numbers guy

Re: I don't know how APR works.

LS2982 — Sun, 25 Dec 2011 21:37:37 GMT

@CreditCrusader wrote:
Easiest way for me to compute and figure APR is as follows:

Ex:

APR 22.9%, $300 balance subject to interest

That is the ANNUAL percentage rate...to make that monthly, divide it by 12 (as in 12 months in a year):

22.9/12 = 1.908% monthly rate

Now, divide that monthly rate by 100 to arrive at the actual interest multiplier that is matched against your balance:

1.908/100 = 0.01908

0.01908 x 300 = $5.72 in interest for that billing cycle.

What can I tell you...I'm a numbers guy

I just PIF to avoid all the math.....I hate math!!!

Re: I don't know how APR works.

Anonymous — Mon, 26 Dec 2011 02:12:41 GMT

Yes, but billing periods have different number of days. Plenty of previous posts from other numbers guys have detailed the more correct way to calculate... But that is a good estimation... Again.

Re: I don't know how APR works.

Anonymous — Mon, 26 Dec 2011 03:29:03 GMT

U make it sound so simple. Your example is my situation right now so please explain if you can. This will be the first month I won't PIF. For example my NFCU CC will have a 350.00 balance this month. If I only make a payment of 100.00 how much of that 100.00 goes to the balance sorry forgot to mention APR is 17.99

Re: I don't know how APR works.

steve23111 — Mon, 26 Dec 2011 03:56:07 GMT

@Anonymous wrote:
U make it sound so simple. Your example is my situation right now so please explain if you can. This will be the first month I won't PIF. For example my NFCU CC will have a 350.00 balance this month. If I only make a payment of 100.00 how much of that 100.00 goes to the balance sorry forgot to mention APR is 17.99

If you had a $350.00 balance going into the current cycle, your finance charges for the period will be ((0.1799/365)*31)*350) or $5.35. So, your next statement balance will be approximately $355.35. Make a payment of $100.00, that reduces your balance going into the next cycle down to $255.35. Finance charges on that will be $3.90, so the following statement would be $259.25. Etc, etc.