|US APR family|
|USA style Annual Percentage Rates|
|Introduction: This family converts a quoted interest rate to a US-style APR, taking into account fees.|
The procedure for adjusting a quoted rate to an APR is:
So what the calculation does is work out the IRR (Internal Rate Of Return) of the loan - but with one important difference. Whilst the cashflow on day 1 is the loan amount, the repayments are based on the loan amount plus the fees.
The method does not produced an annually compounded rate. Usually, the input quoted rate is a simple interest rate, applied monthly. The resultant APR is also a simple interest rate, applied monthly - it"s just that it takes into account the fees.
See the notes under each function for the actual equations (and their derivations) used.
Note that both the QuotedRate and the USAPR are simple interest rates, not annually compounded rates (in the UK, the APR is an annually compounded rate). What the APR process simply does is adjust the quoted rate for the fees.
|Functions in the US APR family (2)|