Hi,
Could someone please let me know how to convert the monthly APR percentage shown on some credit card statements to an annual APR percentage shown on others? Many thanks!
Convert Monthly APR to Annual?
Feb 24, 2006
4 Replies
"Jim" wrote
There's no such thing as a "monthly APR" -- the letter 'A' in APR stands for "annual".
Apologies, sorry. So my question should be, how do I compare/convert interest charges quoted as a percentage per month to ones quoted as a percentage per annum? Many thanks in advance to anyone who can give me a formula, or a URL of somewhere online that can do it.
Difficult to say exactly in proper legalese APR terms because you'd need to take into account any partial repayments you'd make as you went along.
However, if you had a fixed amount of loan debt of, say £1000, at the start of a year, and they were to charge 2% per month interest, and you never made any repayments, then after 1 month the debt would be
102% of £1000, after 2 months it would be 102% of 102% of £1000, and so on. So after a year it would be 1.02^12*£1000 or about £1268.That makes the effective annual rate 26.8%, a bit more than the
12*2% you might expect using a simple-minded approach.Got that? Convert monthly percentage rate to monthly factor (2% -> 1.02), then raise to 12th power to get annual factor (1.02^12 = 1.268), then convert annual factor back to percentage rate (1.268 -> 26.8%). Simple!
(1 + [% as decimal])^12 - 1
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