I am a software developer and develope software for clients .. not always knowing the specific subject matter as well as the clients.
I have a few client that uses our loan managment software to manage their car dealerships (written specially for them at heir request and instructions). They purchase cars and resell them taking a deposit and self finance the rest of the balance.
Up to now, they used to specify a fixed yearly interest rate, and amortize it monthly over the repayment period.
Now they come with a request for daily interest calculations, and I can see where this comes from, if the customer paid extra capital on his loan or failed to make payment, that must reflect on the interest - either positive or negative - immediately.
My understanding is that the yearly EAR compounded monthly is then actually supposed to be less than the EAR compounded daily ? Morally - Is this not just another way to get extra money from the consumer that is already in debt?
Another issue ... people with debit order deductions .... how do I cater for the monthly variances when they have signed a debit order instruction? Are we allowed to adjust the amount?
IF I do monthly compounding for instance 12 % I get an APR of 1 + (0.12/12)12 for a 28 day month and for a 31 day month which works out nicely for a fixed debit order amount every month, while on a daily compounding I get for instance 1 + (.12/365) 28 and 1 + (.12/365)30 and 1 + (.12/365)31 which is not the same.
Any comments on this is appreciated as i am not a financial guru, and neither are my clients and I don't want to give them something which is not good for them or their clients.