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#1837179 - 07/27/13 06:18 PM APR lower than interest rate
goingtoexperts Offline
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Joined: Jul 2006
Posts: 149
What causes the APR to be lower than the interest rate in the following example?

$10,000 fully deferred student loan at an interest rate of 3.50% that assumes 4 years in school, 6 month grace after graduation and a 15 year repayment term. U.S. Rule is the computation method. Interest is capitalized at repayment. There are no fees. The APR is calculated to be 3.41%, slightly lower than the interest rate.

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#1837182 - 07/27/13 10:20 PM Re: APR lower than interest rate goingtoexperts
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 10,056
Toano, VA
It's due to the lost opportunity to either receive or compound accruing interest during the 4.5 years before the loan goes into repayment. U.S. Rule does not allow compounding, but the APR math assumes that compounding has taken place.
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