That number with the percent sign after it really doesn’t mean much - it is the rate at which you pay that matters. In addition, there are, to my memory, seven different ways to calculate interest. It’s like going to seven different countries on a vacation and having seven different ways to measure how far you have driven.

10 Kilometers, 7 Miles

Sally went up to Canada and drove 10 kilometers, and Dan down in the USA drove 7 miles. Who went further? Actually, Dan did, becasue 10 kilometers is about 6.2 miles. The concept is very much the same when looking at your interest rate.

Only one way of calculating interest is wholly beneficial to the consumer in the case of
debt. It’s called Simple Daily calculated Interest - in other words,
anytime you make a payment or change the balance in any way, your
interest is re-calculated upon receipt, based on the new balance -
hence immediately lowering your debt and accrued interest.

If you have
a scheduled loan, no matter when you make a payment, they will only
apply it to your balance on the due date, which allows the
interest to accrue as usual for the full time period of the schedule,
usually one month - worse yet, scheduled loans don’t EVER use simple
interest, they’re either compound or annual.

Analyzing the conversion rate

Let’s
say you have a $100,000 loan with Daily Bank and a $100,000 loan with
Scheduled Bank, both at 10%, just to make it really simple. You pay
$500 to each twice a month. Here’s what you’ll end up with after the
first year:

Scheduled Bank, debt $100,000 @ 10% APR ($10,000 in interest to be paid over the year)
+30 days: Principal + ($10,000 / 12) - $1,000 = $99,834 remaining balance (interest is $833.33r monthly)
+60 days: Principal + ($10,000 / 12)  - $1,000 = $99,668 remaining balance
…
+360 days: Principal + ($10,000 / 12)  - $1,000 = $98,000 remaining balance

Oh
goodie. You’ve made a $2,000 dent after paying $12,000. Now, Daily
Bank, because it’s Simple Daily Interest, it uses simple interest,
which works very differently. You take that 10%, and divide it by 360
days, giving you a daily rate of .02% - pay special attention to that
decimal place!

Daily Bank, debt $100,000 @ 10% Daily Simple
+15 days: Principal + (.02% x 15) - $500 = $99,800 remaining balance (nterest was $300)
+30 days: Principal + (.02% x 15) - $500 = $99,599.40 remaining balance (interest was $299.40)

Really look at that!

Whoa
wait a second here - you’ve already got a lower balance on the simple interest loan in
two payments, than you did on the scheduled loan in two payments - and it’s
in HALF THE TIME. I would calculate the whole year out, but that’s a
bit more difficult for simple interest. Notice something else too -
you’re paying less in interest right off the bat. There’s a $333.60
difference just in the first month! My math isn’t wrong either - go
ahead and double check that.

Interest rate is nothing more
than a sales gimmick! It’s exactly like someone convincing you to move
to Australia because their gas is $1.20 a liter, which is so much
cheaper than yours at $2.60 a gallon. You’ve got to do the conversion,
read the fine print, before you can know exactly how much you’re paying.