Your APR formula is correct for single payment loans, but if you're advertising any other type of loan, the calculations
require a computer program. Actually, the simple, accurate way to get what you need for an advertisement is to run a hypothetical deal through the software your lenders use to generate the official disclosures that will be printed and delivered to new borrowers.
Other bank websites can be used as guides for style and formatting, but DO NOT use them as a substitute for the actual regulation
. For many years after banks started advertising loan rates online, I routinely found that 80% to 90% violated Regulation Z in one or more ways. Minutes ago, I looked at the loan rate advertising on 5 randomly selected bank websites. Four out of the five didn't comply. If you want to study lots of online rate boards, use "member fdic" and "loan rates" as your search terms.
Here are a few suggestions that should help you avoid the most common errors and misconceptions:
1. Regulation Z says you can only advertise terms that are actually available, so the terms you advertise in any medium must be up to date. This is especially true for online rate boards because, unlike print advertising, you can change virtual ads at any time without additional distribution cost, i.e. - no excuses. In the real world, things don't always happen as quickly as you would like, so it's a good business practice, even on web pages, to indicate expiration dates in one way or another. Doing so will help deflect "bait & switch" claims.
2. It's a bad idea to "low-ball" your ad terms. Even though they may actually be available, terms beyond the reach of a significant percentage of your target audience can cause unrealistic expectations and result in complaints to regulators who are bound to investigate (wasting your time.)
3. You are not required to advertise the range of terms that are available, but that would be one way to provide representative examples. Many banks select one mid-range set of terms for their ads, label the necessary disclosures as "typical" or "representative", and invite potential borrowers to contact a lender to discuss specific terms. Without getting into random samples, bell-shaped curves, or other formalities, I simply looked at a recent report of new loans of the type we were advertising, eyeballed the list, and picked loan amounts, rates, maturities that showed up most often. Then, I ran my representative terms through our loan documentation software to get the APR and payment scheudle. There can be many ways to pick illustrative examples, but it's good practice to note your method on the web page.
4. You can never advertise simple interest rates without the accompanying APR, and if you do mention simple rates, they can't be presented in a more conspicuous manner than the APR.
5. For decades, Regulation Z did not allow use of the abbreviation "APR". We still can't use it on loan disclosures, but the rulewriters finally relented and allowed it in advertisements.
6. If you advertise APRs, you must state that the rate is subject to increase when that is the case.
7. Sorry to quote the regulation, but there's no clearer way to say this:
If any of the following "triggering terms" is set forth in an advertisement,
- the number of payments or period of repayment.
- the amount of any payment.
- the amount of any finance charge.
- if, and ONLY IF, you are advertising credit sales (loans to finance the sale of repos, foreclosures, or other bank-owned property): the amount or percentage of any downpayment.;
then the advertisement must include:
- the terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment.
- the “annual percentage rate,” using that term (or "APR"), and, if the rate may be increased after consummation, that fact.
- if, and ONLY IF, you are advertising credit sales, the amount or percentage of the downpayment.
8. The "one-click rule": If a web page contains a triggering term requiring additional disclosures, then those additional disclosures may
be placed elsewhere on the site provided there is a link that directly takes the consumer to the additional information. "A link" means one click. If more than one click is required, then this option is not available.
9. The hands down, all time favorite way to violate Regulation Z's advertising rules is to state the period of repayment (ex: "30-year fixed rate", "up to 72 months to pay", etc.) without also stating the dollar amounts of the resulting payments and the APR.