It is all quite legal and here is a an actaual example from to day’s newspaper, typical of most of them. They simply exploit people’s ignorance of the rules of rounding:
A major finance company advertises that its lending rate is 8.4% APR and their accompanying table shows that for a loan of £10,000 over 120 months you would pay £122.05 per month,
If you calculate the true interest rate for these payments, you will find it is 8.447%. Of course in law, the company cannot be accused of telling lies, because to the first decimal place, the interest rate they are quoting is correct.
I note that some people misunderstood my point which is this: Since the true l interest charged is 8.447%, they should not be allowed to call it 8.4%
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I wouldn’t call that a lie or cheating.
In the USA, they are required to divulge the effective rate in advance on the mortgage agreement.
The interest is compounded daily, and the daily rate is usually calculated by dividing the annual rate by 360 instead of 365 or 366 for leap years, which makes it even higher.
The same is true when finance companies pay you interest on your savings though, so you are doing it also.
They are NOT lying, you are misunderstanding the terms used. The first decimal place is NOT the issue. A 8.4% APR compounded monthly IS an 8.447% effective rate.
It’s true.
you forgot about the compounding effect – they are correct — proud that you have the smarts to come up with the difference thou.