Consumer credit and payday loan (pikavippi) APR calculation

Instant payday loans (aka pikavippi) annual interest rates seem to be vague term often companies in

the sector. Annual interest rate calculation methods seems to be as many as there are different credit

companies. Also raises the subject of much debate, especially since the year instant loans interest

rates often seem really high. Wild figures are for the most part, however, only the window dressing,

because of their background cannot be found other than the method of calculating the induced

exaggeration. The definition of interest in various calculation methods will be addressed further in

the next chapter.

What is the annual interest rate

Annual interest rate, or as officially called the APR, the

interest is deferred, the objective is to obtain the loan. A

wide variety of consumer credit and other loans

comparable. Annual interest rate as if the said loan to be

paid interest on the amount of the time period stretched.

It can be useful simplified example: $ 100 instant loans

takes months and months after the return is paid 120

euros. In this case, one month's expenses (interest) is 20

euros. If you take a loan for the same cost, would be paid

each month for expenses above 20 euros, when the full-year expenses should be 240 euros (12 x 20

e). In this case, an example of a 100 euro annual interest rate would be 240% (240e/100e * 100).

In the example above, however, the APR is calculated for the simplest possible way. Today, the EU

Consumer Protection Directive, the updated domestic consumer protection law requires lenders to

notify the credit annual percentage rate, calculated using the formula a little more complex. This is

called the effective annual interest rate. The annual effective interest rate calculation will be

discussed below.

The annual effective interest rate

The Consumer Protection Act now requires all consumer credit, such as instant loans and consumer

loans, credit marketing to inform the actual annual interest rate, so that they have been used in the

calculation of the annual effective interest rate formula. The annual effective interest rate differs

from the simple to the above-mentioned year emphasizing that it calculates the annual percentage

rate "interest on interest" principle. Costs 20 euros a month is no longer going to become a 240

euros, but much more because the interest rate for a way to increase month by month calculated in

accordance with the annual percentage rate.

The annual effective interest rate calculation does not have any more complex cases, no longer able

to simple arithmetic, but is required for the calculation programs. Calculation is well suited for

example, a spreadsheet program such as Excel. Effective interest rate is called the internal rate of

return the title. Excel has a function called IRR (Internal Rate of Return), which can used to

calculate the consumer credit loan equity internal rate of return function of the payment schedule. If

on the payment schedule for tasks such as monthly installments, the IRR function to keep interest

earned yet scaled the annual level of deferred loan in order to obtain the annual percentage rate.

Simple annual interest rate – aka nominal interest rate

A simple annual interest rate is the traditional way to calculate the consumer credit and payday loan

(aka pikavippi) APR. This method was not until 2010 the Consumer Protection Act, according to

the way in which the reported annual rates were calculated.

It was already presented in the above example, which explains a simple method of calculating the

annual percentage rate. In simple APR is the so-called rolling, which means its calculated through

the whole year, the same proportion as the original credit to the consumer or payday loan (aka

pikavippi) payment schedule. If the loan maturity is T months and the loan is paid expenses per R,

is obtained as an expense in its Annual R x T/12 million. When these "annual expenses" related to

the original loan amount (let this D) is the annual percentage rate using the formula 100% x (R x

12) / (K * T).

The formula is complicated somewhat in the case of consumer credit is paid back in several

installments. In this case, must be taken into account, the amount of the credit is reduced whenever

the repayments. The figure in this respect a complete a simple formula for calculating the annual

percentage rate. L describes the formula of principal and interest payment months interval.

Consumer credit case, L is usually one month.

A formula can also be used for months instead of days, which is especially small and short-term

loans, such as instant loans case, it is usually easier. In this case, we have to remember to convert all

of the time describe the quantities (R and L) and the constants (12 => 365) days.

Consumer credits and the problem with effective interest rate calculation As an example at the beginning of the $ 100, one month and costs 20 euros consisting of fast loan

(aka pikavippi) APR is calculated using the effective interest rate formula would be 819%. The

figure is thus nearly 600%-points higher. This is a good illustration of the effective interest rate

problem: small and short-term lending interest rates should be the case of compound interest

principle of the prohibitively high. The annual effective interest rate is well suited for consumer

credit and other loans to calculate the annual interest rate, with terms of payment are a number of

years. An example of this consumer credit reference, a deferred annual interest rates are far more

moderate than in the example above, although both the calculation formula is exactly the same.

While talking about less than half a year short instant, absurd interest rates increase from year to

cause only more confusion than benefit. VIP of the month is paid back months later and only once,

so why on earth should be characterized by its interest in such a way that the interest rate paid on

top of twelve times throughout the year?

For further info, see:

For Finnish payday loan interest rates http://www.vippivertailu.com/pikavippivertailu/

Interest rates calculation: http://en.wikipedia.org/wiki/Annual_percentage_rate