Interest (APR and the like)

[divine`]

Can someone explain how interest on loans and stuff is calculated?

Because I always see adverts on TV (like the Picture loans one) where you can borrow, say, £25k at 7% APR or something yet you're paying back in the region of £45k. Now this obviously isn't 25000 + 7% of 25000...

I don't know how the numbers work basically and would like some knowledgeable soul on here to explain it to satisfy my curious nature

 

[DB_SamX]

I'll point you to that but it is very complicated and I couldn't make complete sense of it. http://en.wikipedia.org/wiki/Annual_percentage_rate

OT - what happenned to the "madness" in yout nickname?

/edit - that's a bit easier - http://www.moneymadeclear.fsa.gov.uk/products_explained/what_is_apr.html

 

[Rotty]

APR is a bit awkward as it can factor in a lot of things

as much as they are not allowed to use flat rates are easier to work with

7% APR may equate to 4% flat ( it also may not depending on other factors )

so £25k over 10 years at 4% flat is £45k + 40 % = £35k

APRs are used as they factor other costs in and are supposed to be a figure than you can use to compare between lenders

 

[divine`]

Cheers both of you

The madness got dropped as i got bored with it, it's too long for IRC etc. as well, so I had it changed