Son's Homework on APR

[7mayfield]

My son has a homework question that I just can not get my head around......'If you borrow £1000.00, pay off 5% each month, but get charged an APR of 2% each month, how much interest are you being charged?'.....can anyone help with the answer please??

[HowardKennitby]

has he been shown how to do this type of calculation?

[7mayfield]

No he hasn't been shown, it isn't maths homework, it is 'Life Skills' !! This is homework for a 14 year old, and I am 42, and can not do it!!!!

[jno]

well, you're being charged 2%... If you mean how much in money terms, it will change from month to month as you pay it off

[HowardKennitby]

I can't do it either.
Is that all the info?
It seems to me it will depend whether interest is charged at the first of the month or the end and similarly when the repayments are made.

[7mayfield]

I said to him that the amount must change each month, all I could work out was that the 2% APR (annual - yearly) would be 0.17% per month - (I think),

[Prudie]

If it's 2% each month then surely the APR is 24%

[jno]

that sounds about right (I don't know if APR is calculated on the basis of compound interest or not, as I don't have any Life Skills).

So in month 1 you'd pay £1.70. But after 12 months the sum would have been reduced to £400, so the interest would have come down in 12 steps to 68p (and would continue on down).

I am open to correction by anyone who can actually do maths.

I don't know which figure they want as an "answer".

[jno]

mmm... Prudie, good point. APR is an annual figure, so what's a "monthly APR"? It sounds like a contradiction in terms. Is it 2% a month or a year?

[whiskeryron]

1st month pay £50 bal =£ £950+2% = £969. 2nd month pay £48.45 (5%) bal=£920.55 + 2% = £938.96 etc. etc.

[bigbadmarty]

Its a badly worded question 7mayfield .
We didn't do life skills ...