To be clear I am not arguing with you. I agree with everything except the 12% APR. In order for you to have made 12% on my example of $1000 per month your annualized return would have been $1440 or 12% of the $12000 (1000 x 12 months). You cannot multiply one side of the equation by 12 and not the other as you would when calculating an APR on an actual multi-year loan. APR is very dependent on the time period of the actual loan, ask any banker. No matter how you do the math 120 bucks (10 bucks a month) is only 1% of the total. Your annualized profit is 2%. 1% from cash back and 1% from your bank account. It is still worth doing if you have the discipline but many do not and treat CCs as if they are monies above and beyond their actual cash flow.

 

Annual Percentage Rate (APR) is the equivalent interest rate considering all the added costs to a given loan. Naturally, it is a function of the loan amount, the interest rate, the total added cost, and the terms. The APR would equal the interest rate if there is no additional costs to a given loan.


From:
http://www.efunda.com/formulae/finan...calculator.cfm

 

You seem to be using percent gain and APR interchangeably.
Don't know if this is an typo or an actual error. The 2 are not the same.

If iI am making an error, that is cool, but same question as above :
Your answer was :
The question was what APR did you earn for 1 month.

so which is it 1% APR or 12% APR ?

Ask any banker what ?
The value of APR might change on a CD for 6 months vs 12 months vs 24 months, but this is the for locking your money up longer.
The use of APR with these 3 CDs shows you that there is more reward per 12 month period for leaving your money there longer.
It is a way to compare different maturity lengths with a common number.

 

I am not using them interchangeably. I may have mistyped. Your answer is 1% APR not 12% APR. Your APR is the same as the interest rate because there were no costs to the loan. APR is a function of the terms including duration. It is not independent of duration. All of the CC "loans" in my example are only one month in duration. You have 12 little loans in a year. You do not have a single APR. You have 12 and they are all 1%. You cannot add them up for the year and say 12%. If you are talking about yield and want a yearly rate you have to multiply both sides of the equation by 12 not just one side. Quoting definitions does not change the answer. APR is a number that allows you to compare different bank loans because it rolls in all costs of doing business with each bank for the loans. APR is what you are charged for borrowing money and the reason it is different than the actual interest is because any fees or costs are rolled into the calculation to show your actual loan cost. In reality it does not apply here because you are not paying the CC company fees or interest. You are collecting a cashback reward but because you are using the term anyway I just wanted to clarify that it is not 12% APY or APR.

 

Seem to be having a disconnect about what APR actually is.
Until this is corrected, not going to far.

$1,000.00 invested for 1 month that pays $10.00 in interest ( 1% of principal ) is 1% APR ???
- That sounds like 1% MPR ( Monthly Percentage Rate ), as it percentage per month not per year.

How much do you make in 12 months @ 1% APR on $1,000.00 then ?
- Can't be the same number as 1 month.

How much do you make in 1day @ 1% APR on $1,000.00 then ?
- Can't be the same number as 1 month or 12 months.

Here is a simple interest calculator for you to use in figuring out 12% APR vs 1% APR for 1 month and for 12 months.
http://www.webmath.com/simpinterest.html

The pull down at the bottom allows the term value to be changed from years to months, so you can enter 1 month.

APR is a percentage rate for a 12 month term.
If you go longer than 12 months, you will have more money from interest, if you go shorter than 12 months you will have less money from interest.

The same APR percentage for 24 months or 1 months or 36 months will pay the same amount ( using simple interest ) per month.
You just have more months in the term ( 24, 1 or 36 ), which is why the interest dollar amount goes up.

Do you think 18% APR on a credit card, if you carry a balance of 1,000.00 for 1 Month is charging you $180.00 in interest for that 1 month ?

Your 30 year mortgage @ 6% with $ 100,000 outstanding balance, is the total interest for all 30 years shown as : 0.06 x 100,000 ?

APR is already based on 12 months ( Annual Percentage Rate )
If you multiple by 12 again, that is 144 months, not 1 year.

And it shows how much you make or pay in interest per what time standard time frame ?
The answer is in the name APR, that is why I put in the definitions of APR, you seem to be missing the standard term component of APR.

 

I tried to correct you but you still haven't got it.
Even your quoted sites agree with me.


You do not really have an APR if it is only a one month loan. But if you choose to think about it that way it is still 1% because there were no additional costs.
You are the one that used APR in your attempt to educate Alex.

There is only simple interest for 1 month. You have 12 one month loans. There is no balance carried over each month. You start fresh at 0.
12 one month loans at 1% does not equal 12%, 12% APR or 12% APY and this is the ONLY point I was trying to clarify in your response to Alex.

If you chose to turn it in to an Annual value instead you now have to multiply both sides of your equation by 12. 1000 invested per month x 12 months = 12000 invested. 10 bucks per month gained x 12 months = 120 bucks. 120 bucks is 1% of 12000. You can do the math.

When there are no fees or costs in a loan your APR equals your interest rate.

APR is your cost of doing business with a bank when you take a loan. The cost includes interest paid and any fees like closing costs etc.
It does not really apply to getting cashback from a CC. APR is used to compare loan products from different banks to help you pick the best deal.
APY is your annual yield.

I am done as there is no point in continuing as long as you insist that you are right and I am wrong. I disagree.

 

I think what is missing in this discussion is the fact that any institution that is charging interest must state their rate as APR. The government requires this so anyone can compare and there is a level playing field. You may use the money for 0ne month, or any other period of time, but the interest rate must be stated as APR.

 

I agree but we are not talking about interest PAID or the cost of a loan. We are talking about the 1% cashback per month on a credit card. 1% per month does not equal 12% (anything, APR, APY, Cheerios, etc) per year because simple math tells us that 10 bucks is 1% of 1000 per month and 120 bucks is 1% of 12000 per year. APR does not apply to cashback from your CC.

 

Yes, I see what you are saying. It would be close to 12% APR on the average balance, if you wanted to state it that way.

 

Getting 1% cash back is not the same as getting interest ?
It is a fee paid for an amount. Is that not interest in it's most basic form ?

If you get paid 1% for 1 month, that is not 1% APR.

The URL above showed this was incorrect.

You are back to using yield or percent gain and APR interchangeably with the math you show above.
If you are going to cross the 2, you are correct there is no point in continuing the conversation.

 

Thank you, took a CFO ( and a whole bunch of posts ) but got there all the same

 

Yes it is, never said it wasn't.

APR is the amount you pay, APY is the amount you get.
There is not an APR on your 1% cashback but if you insist on using it it is still 1%. No costs, no fees so no change in actual rate. Very simple fact.

And you are correct there is no point in continuing this conversation.

 

No it wouldn't be. If you averaged it it is still 1%.

$1000/month. 1% cash back per month = $10

Extrapolate to a year:

$1000 per month x 12 = $12000 per year

$10 bucks (interest or cash back) per month x 12 = $120 per year

$12000 per year on CC, 1% cashback = $120

If you want the average 12000/12 = 1000 and 120/12 = 10 and we are back t where we started.

Again as APR is your cost of doing business with the bank it is a wash because there are no costs in this scenario and when there are no costs APR is equal to interest rate on loans.

APR does not really apply here because we are not talking about the costs paid to a bank we are talking about the 1% rebate, interest, cashback CC plan.

If you are trying to annualize your return on your investment you also have to annualize your amount invested as in my math above.

 

No back to it again : APR is the rate per 12 months.
- No part of APR expresses if you are paying interest or collecting interest.

Example : A CD is expressed in APR & APY.

APY is taking into account compounded interest ( interest on the interest ).

Not too sure who taught you about APR & APY....

Don't believe me or a CFO..... You are correct, no point in continuing this conversation ( but I see you are.. and back to confusing percent gain with APR.. )

 

I am not the confused one.
I am done. Point was made. Alex is missing out on 1% free money.