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#2101718 - 10/04/16 09:04 PM Deferred Interest APR
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Does anyone have any experience with using APR-WIN for confirming the APR on a deferred interest loan? The TIL shows 0% for 12 months and then a payment of P&I for the remaining term. The TIL actually uses "e" for estimate and I'm just not familiar with how to use APR-WIN to confirm. The TIL provides: The Finance Charge below includes $9,894.48 of deferred interest, which will be waived if you pay off your entire loan balance within 12 months from the date of your 1st transaction. It further states that the APR may vary from the estimate APR and may be as high as the non-promotional rate of 17.99%.

Here's info from the TIL:

APR 17.99% (e)
Finance Charge $51,969.80 (e)
Amount Financed $55,000.00 (e)
Total of Payments $106,969.80

Payment schedule:
(1) Number of Payments 12
Amount of Payments $0.00
When Payments are Due - approximately one month after the 1st transaction and monthly thereafter for a total
of 12 Months ("Promotional Payment Period")
(2) Number of Payments 83
Amount of Payments $1,273.45 (e)
When Payments are Due - beginning monthly thereafter for a total of 83 months
(3) Number of Payments 1
Amount of Payments $1,273.45 (e)
When Payments are Due - approximately 96 months after the 1st transaction

I used the Amount Financed of $55,000 and the Disclosed (Estimated) APR of 17.99% and left the Disclosed Finance Charge blank. The output from APR-WIN was:

Amount Financed - $55,000
Finance Charge - $51,969.80 (which matches the actual TIL disclosure)
Total of Payments - $106,969.80 (which matches the actual TIL disclosure)
Annual Percentage Rate - 15.8548% and did not generate any sort of tolerance issue

I had a total of 96 Whole Unit Periods and no Odd Days. Since the APR is "estimated" was this the right way to do this in APR-WIN? Thank you in advance!

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Lending Compliance
#2101729 - 10/04/16 09:35 PM Re: Deferred Interest APR Jan94
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,618
Galveston, TX
"The Finance Charge below includes $9,894.48 of deferred interest, which will be waived if you pay off your entire loan balance within 12 months from the date of your 1st transaction. It further states that the APR may vary from the estimate APR and may be as high as the non-promotional rate of 17.99%."

This statement makes no since, as that would be a function of an open-end line of credit and not a closed-end loan.
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#2101776 - 10/05/16 01:20 PM Re: Deferred Interest APR Jan94
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,061
Toano, VA
APRWIN has probably given you an accurate answer...but possibly to the wrong question!

What is the legal obligation between the parties? Don't look at the TIL disclosures--just the promissory note. The TIL disclosures must be based entirely on the legal obligation between the parties...and the borrower can't promise to repay one loan in two different ways.

If your note is worded in a way that has the borrower promising to repay the balance without interest in a single payment due in 12 months, then this contract may not be "consumer credit." If it's not consumer credit then no TIL disclosure is required.

A year later, the borrower might inform you that s/he chooses to repay the balance in installments with interest--rather than in the single payment originally agreed. At this point, you could treat the borrower's election of the alternate terms:
a. as a "subsequent occurrence" under the original note and ignore it, or
b. as a "refinancing" of the original note (which it is not) and provide disclosures, or
c. as a newly consummated consumer credit transaction (which it probably is not.)

Then, there's the opposite scenario. When you read the promissory note, you might discover that it calls for the interest-bearing installments as the expected outcome and offers the interest-free single payment as an option. If this is the case, then you have "consumer credit" from the outset and you must provide TIL disclosures. If the first 12 months are payment-free, then for APRWIN purposes you have a plain vanilla installment loan with an extremely long first payment period. If this is the correct way to view the loan and related APR calculations, then you should expect the APR to be lower than the simple IR because it's a blend of the two simple rates in effect (0% and 17.99%) during the entire 8-year term of the loan.
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