APR vs Rate of Interest: The real price of spreading the cost
Posted on in Cycles News
The Ride it away retail finance calculator has been given an upgrade to make it fully FCA compliant and help customers make more educated choices when buying on finance.
Having made major reforms to the entire credit market the FCA are now looking to rectify smaller issues, such as firms not showing customers the ‘Rate of Interest' as well as the APR.
To maintain FCA compliance, businesses that offer customers interest bearing options (currently 4.9%, 9.9% and 15.9% APR with the ACTs Ride it away scheme), must display the Rate of Interest as well as the headline APR when promoting finance.
But many businesses still wrongly assume that the Rate of Interest is the same as the APR. So let's clear things up!
In simple terms the APR (or annual percentage rate) is the amount applied to the remaining balance each month to calculate the interest owed but, as the balance reduces each month, so does the amount of monetary interest paid.
The Rate of Interest is the sum of each monthly percentage amount added together over the entire term and then shown as a yearly percentage, so the Rate of Interest is actually a much more accurate representation of how much the customer will be paying back.
Example
Let's assume a £1100 bike, with a deposit of £100. This leaves a £1000 loan over 12 months at APR 9.9% - so a customer would pay £99.00 interest, right? Wrong, they would actually pay £52.04 giving a Rate of Interest of 5.20% versus the APR of 9.9%.
Understanding this and being able to demonstrate the actual interest payable by the customer can be key in making a sale - after all, which interest rate sounds better, 9.9% or 5.20%?!
We've updated the Ride it away finance calculator to make this even easier to understand by adding in a ‘Rate of Interest' section in addition to APR. Download the calculator to display on your website, or to show to customer's in-store and help them easily work out how much they'll be paying back. The calculator's also a great tool to help you and your staff correctly fill in the Ride it away swing tags to display on the bikes.
If you've already got the Ride it away calculator on your site it will automatically be updated with the new version including Rate of Interest.
If you haven't downloaded yours yet, simply log in to your ActSmart account and select the APR and terms that you offer to get your own bespoke calculator.
Fully compliant Ride it away swing tags, hanging banners and window stickers are also available to order. Just log in and click through to the Stationery & POS portal to get yours.
Not yet offering finance?
Click here or contact us today to find out more about ofering your customers an easy way to spread the cost of a bike, clothing and accessories!