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Could you please help me to understand the “Annual cost discount” formula? Especially I am not sure that I understand the part where the discount should be divided by amount left to pay. Why it is divided by the amount left to pay but not by the whole amount of the payment?
Thank you in advance!
It’s a tricky one but if you were to work out the interest rate on an amount borrowed then you would divide the interest paid by the amount borrowed, that will be repaid at some point in the future. As the customer is effectively borrowing the amount that will be repaid in the future, which is the amount net of any discount, then we divide by the amount left to pay and not the full amount.
Hope that’s helps in some way.
Thanks
Chris
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