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55. The cost of borrowing is calculated using the formula

APR = (C/(T×P)) × 100

in which

“APR” is the annual percentage rate of the cost of borrowing,

“C” is the cost of borrowing within the meaning of section 58 over the term of the loan,

“P” is the average of the principal of the loan outstanding at the end of each period for the calculation of interest under the loan agreement, before subtracting any payment that is due at that time, and

“T” is the term of the loan in years, expressed to at least 2 decimal points of significance.

For the purposes of the preceding paragraph:

(1) the APR may be rounded off to the nearest 1/8%;

(2) each instalment payment made on the loan must be applied first to the accumulated cost of borrowing and then to the outstanding principal;

(3) a period of

(a) one month is 1/12 of a year;

(b) one week is 1/52 of a year; and

(c) one day is 1/365 of a year;

(4) if the annual interest rate underlying the calculation is variable over the period of the loan, it must be set as the annual interest rate that applies on the day that the calculation is made;

(5) if there are no instalment payments under the loan agreement, then the APR must be calculated on the basis that the outstanding principal is to be repaid in one lump sum at the end of the term of the loan; and

(6) a loan agreement for an amount that comprises, in whole or in part, an outstanding balance from a prior loan is a new loan for the purpose of the calculation.