The aim of this note is to measure the impact of the extra-costs payment on the Effective Annual interest Rate (EAR) of a consumer instalment credit. We show that EAR can be approximated by augmenting the credit rate with an extra-costs rate addendum. This latter addendum is a function of the Macaulay duration of the extra-costs payments.
A Measure for the Extra-costs to Evaluate the Global Cost of Credit
Tibiletti, Luisa;Uberti, Mariacristina
2021-01-01
Abstract
The aim of this note is to measure the impact of the extra-costs payment on the Effective Annual interest Rate (EAR) of a consumer instalment credit. We show that EAR can be approximated by augmenting the credit rate with an extra-costs rate addendum. This latter addendum is a function of the Macaulay duration of the extra-costs payments.
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