Consumer Credit Consultancy and Training

CALCULATING THE ANNUAL PERCENTAGE RATE

The APR.EXE program provides a simple but powerful calculator for the Annual Percentage Rate under either the Present Value Rule or the Period Rate Formula (for details of which see either the Consumer Credit (Total Charge for Credit) Regulations 1980 or the Office of Fair Trading booklet "Credit Charges"). 

It was originally written for the Acorn Atom computer by the late Brian Stewart of the Office of Fair Trading, and then converted to PC use and updated by Russell Chidwick (Kent Trading Standards) and Bob Imrie. It is written in QuickBasic and compiled into an executable DOS program.

The program is clear of viruses; and it has no absolute dates, making it "Year 2000" compliant.

The current version takes account of changes made by the Consumer Credit (Total Charge for Credit, Agreements and Advertisements) (Amendment) Regulations 1999, in force from 14 April 2000, in that the APR is declared as rounded to 1 decimal place, rather than, as required previously, truncated to 1 decimal place.

Installation

The APR-DOS.BOB program (about 51 kB) can be downloaded from this web site to a suitable memory stick  or onto your computer's hard disk.

To download it please follow these instructions carefully (these presume a standards Windows PC):

1. Right click on the hyperlink for the program, to reveal a list of options
2. Click on the "save target as" or "save link as" option, which should open a standard Windows file manager
3. Choose a place on your computer where you can store and retrieve it (I use a directory on my PC called "Downloads").
4. Press the "Save" button on the file manager.
5. Exit from your web browser, and then use your normal directory manager to access the APR-DOS.BOB file.
6. Right-click on the file to reveal a list of options.
7. Click on "rename" and change the name of the file to APR-DOS.EXE

To run it double-click on the file, and it should open a black window, which then reveals a start-up menu, as per the Operation paragraph below.

Problems with  apr-dos.exe

There are known to be some Windows errors caused by trying to print results from this program. This only seems to happen on later editions of Windows 98, or on any later version of Windows and does not seem to happen on every occasion. A new version of the program in Visual Basic is being prepared which will get round this problem. For now, one solution is to right-click on your calculation window's header. This will reveal a menu, one of whose options is "Edit". Click on this and it will offer you a chance to "Select all". Do this and the text in the window will be highlighted. Get back to the Edit menu, and this time choose "Copy". This will place the whole calculation on your clipboard, from which you can paste into your word-processing program.

Operation

When you run the program, the initial menu gives you a choice between 1. Present Value 2. Period Rate E. Exit back to System

Press 1, 2 or E to make your choice.

The following sections of these notes cover 1 and 2 in turn. Obviously, E returns you to the point from which you started the program.

Standard Intervals

Firstly, however, you must ensure that you understand the limitations of the two subprograms. Each requires that there be the same standard interval (normally monthly) between each payment, and (in the case of multiple advances, between each advance). All times are then measured in numbers of that standard interval. Thus in a 25 year endowment mortgage with monthly payments, the capital will be repayable at time 300.If there are gaps in payments, then these can be entered as a payment level of zero pounds. The first payment in the first payment interval will always be taken to occur at time 1.

1. PRESENT VALUE

1. The program first asks you for the number of advances. Normally, you will enter 1, but in the case of staged advances (as in the case of a new house building loan) it is possible to enter more than one. The first advance will be assumed to occur at time zero; any subsequent advance will need to occur at a stated number of standard intervals from time zero.
    
2. Next you are asked for the number of levels. Each level consists of one or more payments made in a group. A loan with all payments equal will have one level, while a mortgage with a two year discount rate followed by the remainder of payments at the normal variable rate will have two levels.
   A loan requiring a first monthly payment of aggregated interest will itself be a level of one payment before the main levels of the agreement take effect.
   Where payments are not required, say for the first three months, then these months must be regarded as a level (their amount as required in paragraph (5) below being zero).
    
3. The number of irregular payments is now required to be entered. An irregular payment is one which is outside the amounts which occur within the levels identified above. Any fees that fall within the "total charge for credit" will have to be included, as will any repayment of credit in a lump sum (such as under an endowment mortgage). Each can be considered to be separate irregular payment, or you can add all such payments occurring at the same time together.
    
4. Enter the amount of the loan. (If more than one advance has been stated in paragraph (1) above, you will be prompted to enter all of the following ones, stating for each the number of standard intervals after the first one is made.)
    
5. For each level which you have identified in paragraph (2), you will be asked to enter the amount of the payment, followed by the number of such payments within that level. Thus, for a 25 year monthly payment mortgage with a one year initial discount, having 2 levels with payments £x and £y, you will enter :-

6. You will then be asked to enter all the irregular payments which you stated in paragraph (c) above. Each will require the amount followed by the time at which it occurs (measured in standard intervals). Thus survey and legal fees will normally occur at time 0; capital repayments and sealing/redemption fees under a 25 year mortgage will occur at time 300.
    
7.  Finally, you will be asked for the number of periods per year. Enter the number of standard intervals which would fill one calendar year. The answer will be 12 for monthly payments, 52 for weekly payments.
    
8.  Now the calculation will be performed, the computer taking several guesses at the answer and printing on the screen accuracy measures (which you can ignore) before displaying the following results:
    
   •  Total amount payable
      
   •  Total charge for credit
      
   •  Period rate (ie. charge rate per standard interval)
      
   •  Calculated charge rate (ie. the unrounded APR figure)
      
   •  The APR.
      
9. Finally you will be asked two questions to which you should press either the y key for YES or the n key for NO -
   Do you want a printout?   If you press y, make sure your printer is already switched on.
   Do you want to make another calculation?   If you press y, you will be returned to the Initial Menu. If you press n, you will quit the program.

AN EXAMPLE :

Consider a 25 year endowment mortgage of £40,000, with interest of 14.4% for the first year, thereafter15.4%. (variable). There will be a first monthly payment of £734.47 (gross), 11 payments of £480.00 (gross), and 288 payments of £513.33 (gross). There are a Solicitor's Mortgage charge of £92.00, a valuation fee of £96.25, a sealing fee of £20.00.

To calculate the APR for this mortgage, the program entries will look like this :

2. PERIOD RATE

1. Firstly, the program asks you to enter the period rate. This will be the percentage charge per period (eg. 1.85 if the charge is 1.85% per month).
    
2. Next you are asked for the number of periods per year. Enter the number of standard intervals which would fill one calendar year. The answer will be 12 for monthly payments, 52 for weekly payments.
    
3. The program will now calculate the APR directly. It will then print out the unrounded exact rate followed by the APR.
    
4. Finally you will be asked two questions to which you should press either the y key for YES or the n key for NO -  
   • Do you want a printout? If you press y, make sure your printer is already switched on.
   • Do you want to make another calculation? If you press y, you will be returned to the Initial Menu.   If you press n, you will quit the program.

    

These notes were prepared by Bob Imrie, 4 Rio Drive, Collingham, Newark, Notts NG23 7NB

Tel 01636 893799
Fax 01636 893927
or email to bob@creditlaw.co.uk.

© R J Imrie                      This page last updated 06 November 2008