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OVER 60 TIMES

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THE EFFECTIVE INTEREST RATE: WHAT YOU REALLY PAY* 7/2/2007

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THE EFFECTIVE INTEREST RATE: WHAT YOU REALLY PAY*

WHAT RATE ARE YOU REALLY PAYING ?
*SEE ‘THE EFFECTIVE RATE CONVERTER’ DISPLAY SCREENS

1. Although financial institutions quote interest rates as a % p.a. rate, the ‘effective annual' rate (i.e. the % rate per annum) that they are charging depends on the frequency of their compounding (i.e. how often they debit your account with the interest charge). Bank fees also affect the ‘true’ rate that you pay. See section 15 ( Effect of Bank Fees).

Example:
Financiers A, B and C all quote 7 . 000%p.a. interest rates on their loans.

Financier A compounds weekly (debits your account with interest on a weekly basis)... the effective annual rate they charge is 7. 245 %p.a.

Financier B compounds monthly (debits your account with interest on a monthly basis)... the effective annual rate they charge is 7. 229%p.a.

Financier C compounds annually (debits your account with interest on an annual basis)... the effective annual rate they charge is 7. 000%p.a.

2. How often does your lender debit (compound) your account with interest?

3. What is the true annual interest rate that you are really being charged ?

4. To find out the ‘effective annual’ interest rate use the EFFECTIVE RATE CONVERTER included in the CD provided :
Insert your interest rate in the box provided.
Select the Compound Cycle (frequency ) that you are being debited with interest.
Click 'Calculate' and check the 'Yearly' interest rate shown in the results box.
This is your true annual interest rate.

5. Conversely:
To determine what a 7. 000% interest rate per annum should equate to if compounded weekly:
Insert 7. 00 in the Interest Rate box
Select 'Yearly' from the 'Compound Cycle' box
Click 'Calculate'
Check the 'Weekly' interest rate in the results box. i.e. 6. 7703%.

SAMPLE STATEMENT No. 2a
EFFECTIVE RATE CONVERTER 7 . 00% Weekly = 7 . 2458% Yearly

SAMPLE STATEMENT No. 2b
EFFECTIVE RATE CONVERTER 7 . 00% Monthly = 7 . 229% Yearly

SAMPLE STATEMENT No. 2a
EFFECTIVE RATE CONVERTER 7 . 00% Yearly = 7 . 00% Yearly