Don't know if anyone on here has seen this, or wants to comment on it:
Aside from the fact that anyone who signs up for this sort of thing deserves everything they get, are the calculations mentioned in the article right?
I find it hard to believe that anyone taking out £100 at a rate of
2600000% would only have to pay back £125 a month?Tom.
They don't specify the repayment period. APR's do get silly for short term loans, and frankly not worth bothering about - the cost of the loan is more relevant (and will reflect risk, admin etc more than interest rates).
As an extreme example, if I buy you a coffee for 99p and you pay me a
1 back two hours later, the APR on that loan is over 1,300,000,000,000,000,000,000%. But it's only cost you a penny.
It depends entirely on how many months that is for, but for any more than one month, and even for just one month, that is a very high rate of interest.
If you go to the 'loan calculator' linked to on that page, and put in that you want to borrow £100 at 2.6million % APR over 1 year, it tells you that you'll be paying back £133.30 a month, for a total of £1,599.66.
That cannot be right, surely??
Tom.
"GI Joe" wrote
Why not? But I actually get more like 133.3057..., which I would round up to 133.31 per month.
According to my calcs (and not doing any rounding) if you pay 133.30 per month, then after 12 months you'll owe 111.513202, and after 24 months you'll owe 299466.278.
If you pay 133.31 then the loan will be paid off in the 12th month.
If you round (or round down) the interest then 133.30 will exactly match the interest and you'll still owe 100GBP forever.
If you round up then 133.31 will exactly match the interest and paying
133.30 will leave you owing 271.57 at the end of 12 months and rather in excess of four million pounds at the end of 24 months. Paying 133.32 will pay the loan off by the end of the 11th month.Tim.
I make it: $ bc -l scaleP f0/99 g=2/(24*365) x=e(l(f)/g) (x-1)*100
1311739700002037861542.451661531990687316415731198918769718128404441\ 21800which is
1,300,000,000,000,000,000,000% as Andy said.Tim.
The thing to remember about APRs is that they are based on what the loan would be if the rate continued for a year and no repayments were made.
A 2.6million % APR is in fact "only" a 133.3% monthly rate. Work it out - increase the debt by 133.3% every month and after a year it has increased by 2.6 million%.
BUT - if you make repayments every month of at least 133.31, you are reducing your debt every month (as the original 100 will have grown to 233.30 and your repayment then takes it below 100).
With such a large APR, you only need to make tiny initial capital repayments (1p will do) and the proportion of capital/interest you are paying will increase exponentially, enough to pay it off after a year.
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