[moneydance] [Moneydance] Loans

[Edward Reid]

At 7/27/2010 08:45 AM +0100, John Sampson wrote:
>Not specifically about Moneydance, why is the APR different from the 
>interest rate?

There can be several reasons:

1) Compounding may be taken into account by the APR but not in the 
nominal rate.

2) Certain fees not normally considered interest may be included in the APR.

3) Whether interest is paid in advance or in arrears may affect the APR.

I had been under the impression that in the US, compounding was 
required to be taken into account in the APR. However, the WP article 
that Kevin linked says this is not true, that the nominal rate is 
used for the APR. In the UK and EU, compounding is taken into account.

I do know that mortgage points are included in the APR in the US. I 
don't know about advance vs arrears payment.

Note that one thing Kevin said is not correct, at least not normally. 
I don't think that the monthly or daily rate is ever quoted (legally 
anyway), at least not in the parts of the world already mentioned. 
For example, 13% interest would not be quoted as 1.08% per month. 
However, a nominal 13% would be quoted as the APR in the US, but due 
to compounding would be an effective rate of about 13.8%.

Personally I've never had any luck getting the lender's calculations 
to match MD's calculations -- or for that matter Quicken's 
calculations, further in the past. So I find it interesting that 
Kevin had much better results. Perhaps part of the difference is the 
difference in legal requirements in different countries.. Certainly, 
though, at least part of my problem is the difficulty of going back 
and fixing a loan once payments have started. This includes the even 
greater difficulty of entering the specs for a loan on which some 
payments have already been made. The result is that I almost always 
have to correct the automatic payments based on lender statements, 
often by entering a balance correction. I only need those numbers for 
approximate use, so this doesn't matter to me.

Edward