NOTE: I DO NOT UNDERSTAND APR! I need help understanding it.
Just to be sure that I'd asked this correctly..here are the numbers:
-->This is what the contract states:
Amount financed: $4940.00
APR: 17.75%
Finance charge: $964.73
Totaling: $5904.73 to be paid in 24 monthly installments at $246.03.
Is the above APR calculation correct? If so, could you break it down for me? Because...
-->This is how I see it.....(using the same numbers from above)
$4940
x 17.75% = $876.85(should this be the finance charge as
opposed to the $964.73 mentioned above?)
Thus, leaving $4940 + $876.85= $5816.85 to be paid at 24 monthly installments of $242.37.
There is this amount of $87.88 ($964.73 -$876.85) that I is not being accounted for.
WHAT AM I NOT UNDERSTANDING ABOUT APR specifically about the above calculation?
The calculations that were given to you via the contract are correct. What you are calculating (4940 x 17.75% = 876.85) does not account for the time period of 2 years and the payments that are made each month. The way to look at it is like this: You start with the original amount of $4940 and the originial interest rate of 17.75. Essentially, you are paying 1/12 of that interest rate on the balance each month when you make a payment. So, for each payment you make, you are paying less interest on the balance because the balance is less than it was the month before. Still with me? Also, your term is for 2 years. With you calculating the 4940 x 17.75%, you are accounting for one year. APR stands for ANNUAL percentage rate, with ANNUAL meaning each year. Again, you won't pay as much interest in the 2nd year as you did in the first year. You can go to bankrate.com and pull up a loan calculator that will figure all of this out for you. Also, some computer programs (like WORD or EXCEL) will calculate this for you as well and will give you a break down of how much interest you pay with each payment. Hope this helps!