PenFed: Quoted APR vs Actual APR (Based on monthly payments) Issue

[mecheng03]

To start off this is my first experience with PenFed so it might be a bit off. I usually do all of my banking with USAA but due to PenFed's great loan rate (5.39% vs 4.25%) I recently decided to go with them.

On Thursday I got my check and final paperwork to complete the loan but when I went over the numbers I noticed an error in my monthly payments and total financed. My monthly payments are about $2.50 more a month than what I was tracking. Not a lot of money but it ends up to be an extra $150 for term of the loan or an actual APR of 4.38%. To make sure my numbers where correct I used their calculator, multiple 3rd party calculators, and MS Excel and they all give me the same exact numbers. I tried working with one of their phone reps but after 45 minutes and being put on hold 5 times she couldn't answer the question as to why I was being charged extra. The current resolution is that PenFed's research department will look into it and send me a letter in a week but I'm concerned that I'll be in the same situation next Friday.

Have any of you that have banked with PenFed before experienced this before? Is there a department/person that I request to talk to that will at least understand my issue unlike the worker bee I talked to yesterday?

Again, I know it's not a big enough difference in money to walk from the loan but the fact that they can't get their numbers right and have a representative that can answer my questions concerns me.

[60Driver]

I had the same thing happen to me. I calculated the rates and when the forms come in they're about $1.80 more a month. Don't know why and haven't called yet to find out. I figured it had something to do with getting the money about 2 months prior to a payment being due. Post any info you get from them. If I get off my lazy carcass I'll do the same.

[Texas]

I'm sure that it is a function of daily accrual of interest from the time the loan was funded until the first payment is made. Say for example you borrow $40,000 @ 4.25% the daily accrual of interest is appx $4.66. Again, for example if your first payment is due in 33 days you will accrued 153.78 in interest that is spread out over the life of the loan. If your first payment was due earlier you'd have less accrued interest.

I think that this is correct. Any bankers or loan officers out there?

[robert.payne]

Google APR vs. APY and you will find:

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What is the difference between APR and APY?

For loans or investments that involve compounding interest, there are two popular interest rate related terms.

1) Annual Percentage Rate, or APR, is a measure of how much interest will be on an annual basis without taking into account compound interest.

2) Annual Percentage Yield, or APY, is the same interest rate measure, but accounts for compound interest - a better measure of how much you will actually pay in interest. Banks [PenFed] and credit card issuers often express credit card interest rates [new 135i car loans] in APR, in order to better hide just how much interest would cost.

Fortunately, calculating APY is a relatively simply matter, as is APR. Here are some examples so that you can calculate APR versus APY:
APR = Period Rate x Periods per Year
Let's say a credit card company offers a 13% interest rate, and they express that rate in terms of APR with a monthly billing cycle.
13% = Period Rate x 12
The Period Rate is 13%/12, or 1.083% per month.
APY = (1 + Period Rate) ^Periods Per Year - 1
APY = (1 + 0.01083)^12 -1
APY = 13.8%

That extra 0.8% makes a difference in how much you pay each month. How much of a difference? Compare the payments on a $1,000 balance over the span of a year. Assuming you carry the balance consistently, you'd pay $130 in interest on a 13% APR but $138 in interest on a 13% APY.

Likewise, banks will publish the APY on an investment option (like a Certificate of Deposit, or CD) to make it look better than it is. Take a 4.5% APY CD from a bank. This looks like a very competitive, high savings rate, doesn't it? Let's break it down with some high school algebra:

4.5% = (1+Period Rate)^12 -1
4.5% + 1 = (1+Period Rate)^12
((4.5% + 1)^(1/12))-1 = Period Rate

Recalling APR = Period Rate x Periods (in this case, 12): 4.4% APR
In this case, you're not getting the interest rate you thought you were based on an advertisement. If you were comparing this to, say, a 1 year Treasury note, and the note had a 4.45% APR, you could have purchased the higher APY CD without knowing you would have made less money by the end of the year!

There was a lot of math in this article, and that's okay - it's important to know the difference between APR and APY, and how they can be switched in advertisements from financial institutions. That way, when it comes time to shop around for rates, you can compare apples to apples. Here are two rules of thumb:
APR is a better measure of interest rates for investments
APY is a better measure of interest rates for debts and loans

[tlwood]

Uhhhh. I was under the impression there would be no math.

[mecheng03]

Well I just got the same response from their online department. I guess I'll know more once I get my letter from the research department.

Texas, I think there is a good chance your suggestion is correct. I initiated the loan on 06MAY08 (check is not cashed yet) and my first payment is due 02JUL08.

As for APR vs APY. I did some messing around in excel and I got it close but it's still off by $50.

Then again it could be a combination of the two. I'll post their response as soon as I get it.

[60Driver]

I'm going with door number 1, Texas. I can understand that logic. My eyes glazed over and I nearly banged my head on my laptop with door number 2. Which, unfortunately, probably means robert's answer is more correct. I was good at math once.

[malves85]

Im actually going to be applying for a loan with Penfed when I get out of work today. My car is at the dealer and ready to be picked up. For you guys that have used Penfed how long since you filled out the application till you had the money? I would love to fill it out tonight and be able to pick the car up in a few days but Im not holding my breath on it.

[Dan203]

There is an option to have the check overnighted to you for $12. Use that, otherwise it could take up to a week to come through the regular mail.

Dan

[malves85]

Shit I just looked into this now. Is this strictly military? I saw one or two of you guys are military and I guess Pentagon Federal should have given it away.

[Dan203]

No. There is an option to sign up without being military. You just have to "donate" $20 to a military family organization and then put $5 into your account, so it costs you $25. (plus any cash advance fees your credit card company charges you)

Edit: Use option #6 on this page...

https://www.penfed.org/howToJoin/overview.asp

Dan

[malves85]

Thanks for the info Dan. I just went through the whole process until I got this counter offer BS. The offer is 24k for over 7%!! They were unable to approve my request and came back with a few offers like that one and I declined them all. Anyone else get this?

[ulrichd]

Has anyone successfully done an ED deal with them? Someone claimed they do.

[Dan203]

Originally Posted by malves85

Thanks for the info Dan. I just went through the whole process until I got this counter offer BS. The offer is 24k for over 7%!! They were unable to approve my request and came back with a few offers like that one and I declined them all. Anyone else get this?

Nope. I was approved immediately. However I have a credit score over 800, so I can get almost any loan I want.

Dan

[jerryklarke]

I have managed to save approximately $5500 for a home and I have another $2800 on its way from my tax return and I want to start looking this summer, also I owe approximately $10000 at 5.9% interest on my car. Would it be in my best interest to pay off the car loan, try and combine the loans if I find a home and keep the cash for a down payment? What’s my best way to save for a home with a car loan?