A Measure for the Extra-costs to Evaluate the Global Cost of Credit

The object of this note is to quantify the impact of an extra-costs payment on a consumer instalment credit’s Effective Annual Interest Rate (EAR). We demonstrate the EAR can be approximated by adding an extra-costs rate addendum to the credit rate. The Macaulay length of the extra-costs payments decides the above addendum.

Author (s) Details

Luisa Tibiletti
Department of Management, University of Torino, Italy.

Mariacristina Uberti
Department of Management, School of Management and Economics, University of Torino, Torino, Italy.

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