An essay on the inadequacy of APR as a measure of the cost of consumer credit, and why consumer credit legislation should be revised

Osborne, Mike (2011) An essay on the inadequacy of APR as a measure of the cost of consumer credit, and why consumer credit legislation should be revised. SSRN.

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Abstract

This article maintains annual percentage rate (APR) is not the best measure of loan cost and therefore its central role in consumer credit legislation should end. Legislation in many countries is based on the US Truth-in-Lending Act. The legislation is complex because APR is designated the best measure of cost. Research shows consumers find APR confusing and prefer a simpler measure, the finance charge. Conventional analysis argues APR is the best measure and should retain its key role. In this article, mathematical arguments are deployed to challenge conventional analysis by demonstrating APR is an inadequate and misleading measure of loan cost.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Depositing User: Michael Osborne
Date Deposited: 24 Apr 2013 10:34
Last Modified: 21 Oct 2014 13:25
URI: http://sro.sussex.ac.uk/id/eprint/25092
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