Plz explain how APR works!

[Dennis Smith]

Guys hi

I want to take credit line from my bank(chase)

just spoke with my business banker and she said that i can count on 10%-15% APR.

I am looking to get 30K credit line.

How do the interest and payments calculated?

Let's say i am approved for 30K with 12% APR.

On Feb 1st i spend ALL this money(30K) on inventory i want to buy.

What will be the interest and payments? The interest won't be 30,000*0,12 every month right? It will be 30,000*0,12 TOTAL for a year, right?
And if i pay this within 6 months it will be even less. Basically total amount i will end up paying will be 30.000K i took + around 2.2K in interest - does i calculate it right?

It's totally new for me, so please explain in details:)

Thx a lot! bTycoon

p.s. i already have 2 business credit cards(chase and amex), just want to get credit line(expect to pay it withing 6 months most) for inventory.

[Joffrey Long]

Dennis,
You've got several questions here, some without enough information to really answer.

First, if they tell you a 12% APR,* that information alone does not tell you enough to tell you what the monthly payment is, unless this is a credit line where you only have to pay interest every month. (interest only payments)

If it is "interest only" and it is 12%, then Josh is right, you just figure loan balance X 12%, then divide that number by 12. (months)

Example, you owe 20,000.

20,000 X 12% = 2,400 annual interest.

Divide 2400 by 12 and it's 200 per month.

Second, your question "if I pay it in 6 months it will be even less."

The truth is, this is most likely a simple interest loan (check again with Mr. Banker), that means that interest is always computed in the most simple manner, by just charging you interest, at the agreed upon rate, on the amount you owe, for the time you owe it.

If it is simple interest, then if you borrow the same 20,000 for six months, you would still pay 12%, but it would be $200 a month interest (at 12%) for six months, or a dollar total cost of 1,200.

The interest rate normally doesn't change based on how long you have the money. Don't confuse paying a half a year's interest ($1,200) with paying less than 12%. You're paying 12%, for the period of time you have the money. It's simply calculated and charged (at 12%) for a shorter period of time (6 months).

You asked that it be explained in detail, so I hope this isn't toooo detailed, but I'm going to give you the calculator punches on a simple 4-function calculator:

(amount borrowed) X (interest rate) = (annual interest**)

(annual interest**) divided by (12) = (monthly interest)

(monthly interest) times (number of months you owe the money) = total dollars of interest paid

**annual interest expressed as a dollar figure for total one year's interest at that rate

*APR: I think you might just want to think in terms of the interest rate, instead of saying APR (annual percentage rate) as the APR is a combined rate that includes the interest rate being charged, and all other "finance charges" such as up front lender fees, prepaid interest, etc.

The APR is required under TILA, the Truth in Lending Act, and only applies to consumer loans, so would not apply to a business loan, but your business banker might just be in the habit of using that term anyway.
Dennis, are you still awake? Ok, hope this helps.
Joffrey Long