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02-24-2016, 09:28 PM #11
- Join Date
- Apr 2014
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- Washington DC
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Because APR is calculated using the outstanding balance, not the initial amount -- Since cash advances/term loans amortize down, your APR would need to be calculated on a decreasing outstanding balance, not the initial balance of 100k. Let's say you are trying to get to a 13% APR for cash advance that pays initial amount daily throughout the term of the deal. Day one, you are taking 13% of 100K. For the last payment, you'd be taking 13% on the then outstanding balance (say $500), not on the initial balance of 100K. In this example of a 13% APR, you are actually receiving around $6,500 in revenue, not $13,000. And this assumes zero fees.
This is why the easiest way to ballpark is to double the annualized factor rate (but as Zach and Bob point out, that is just back of the envelope and it's a more complicated calculation than that but it will get you reasonably close -- do NOT use that calc in any contracts that show APR!).Carl Fairbank
Founder & CEO boldMODE
www.boldmode.com
Carl@boldmode.com
Founder & former CEO of Breakout Capital (sold to SecurCapital in 2019)
www.breakoutfinance.com
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