Is APR a Robust Measure of the Cost of Consumer Credit?
Michael Osborne ()
Chapter 4 in Multiple Interest Rate Analysis: Theory and Applications, 2014, pp 43-60 from Palgrave Macmillan
Abstract Most people have consumer loans during their lives, making it important that consumer credit legislation is effective. Legislation in many countries is based on the US Truth-in-Lending Act (TILA). Conventional financial analysis underlying the TILA argues that the annual percentage rate (APR) is the best measure of credit cost, and therefore the legislation focuses on APR as a key policy variable. APR is a complicated concept, so the legislation is complex and research shows consumers find APR confusing. Th is chapter uses multiple-interest-rate analysis to challenge conventional analysis and demonstrate that the simple rate of interest is a more eff ective policy variable than APR.
Keywords: Annual percentage rate; APR; consumer credit; complex plane; time value of money; finance charge; multiple; truth-in-lending; TVM (search for similar items in EconPapers)
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