Ohn paid at the equivalent yearly interest rate of 34.3%. That's right . . . 34.3% ! Here it is:. He bought a truck for $4500, and agreed to pay a total of $5000 for it. His 'cost' for the privilege of getting the truck right away but having an extended time to pay for it was $500. That's his 'cost' for the deal. After putting the first $1,500 'down', he 'borrowed' $3,500 and paid it steadily over 10 months. He kept some of the $3500 for only a short time, and other parts of it for longer times. The AVERAGE amount that he owed during the 10 months was half of it = $1,750. That's the average amount of the 'loan'. The cost of that loan is (500/1750)= 28.57% of the average amount borrowed. That was the rate of interest on the loan for 10 months. Had the same average amount been borrowed for 12 months instead of 10, then it would have been charged interest at the rate of (28.57%) x (12/10) = 34.29% .The moral of the story is:. Do not borrow. Pay cash. When you borrow, then they have gotcha, coming and going !
