Installment loan APR: $260.00 loan w/ $100.00 finance charge; $60/mo paid for 6 mo's

Pj703

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Given the following information I need to know how they determine the APR.

An individual takes out a $260.00 loan with a $100.00 finance charge which includes interest. The loan term is six months with six payments of $60.00 for a total of $360.00. The stated APR is 122.07%, how did they arrive at this number given the above information. Thankful for any help you can provide.
 
Given the following information I need to know how they determine the APR.

An individual takes out a $260.00 loan with a $100.00 finance charge which includes interest. The loan term is six months with six payments of $60.00 for a total of $360.00. The stated APR is 122.07%, how did they arrive at this number given the above information. Thankful for any help you can provide.

This is not a great question. We are not told if it is a Simple Interest loan, or otherwise.

Monthly Compounding gives 219.80%.

For Simple Interest:
You must cycle through 6 months. Each month's interest follows I = P*r*t

Month #1

Starting Value + Interest for Month 1 - $60 = Month 1 Value


Month #2

Month 1 Value + Interest for Month 2 - $60 = Month 2 Value

etc.


Month #6

Month 5 Value + Interest for Month 6 - $60 = Month 6 Value = $0

There is an explicit formula for finding this interest rate, but I am certain you don't want to know it. For most purposes, it is an iterative process. Just guess and see how close you get. Guess again and see if you are closer. Obviously, if we're shooting for 122.07%, that might be a good place to start guessing. I recommend a spreadsheet.
 
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