APR Calculation on a Demand Loan
by Andy Zavoina, BOL Guru Guru BIOS
Question: How do you calculate the APR on demand loans?
Answer: Look to 226.17(c)(5) "If an obligation is payable on demand, the creditor shall make the disclosures based on an assumed maturity of 1 year.
If an alternate maturity date is stated in the legal obligation between the parties, the disclosures shall be based on that date."
A few years ago this created some controversy as tax refund loans were disclosed in this manner because the repayment was the tax refund and its exact delivery date was an unknown and the creditor based repayment solely on that. They disclosed based on one-year, but knew it would be satisfied in a matter of weeks. This was not a good practice and was misleading. The APR was greatly reduced based on a longer term assumption.
BankersOnline is a free service made possible by the generous support of our
advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all
banking professionals. Support our advertisers and sponsors by clicking
through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
