APR Calculator

What is APR?

Annual Percentage Rate (APR) is the true yearly cost of a loan expressed as a percentage. It includes the interest rate plus other costs or fees involved in procuring the loan. APR is higher than the advertised interest rate because it accounts for processing fees, GST on interest, and the fact that interest is calculated on a reducing balance monthly.

APR vs. Flat Rate: Banks often quote flat rates which sound lower, but APR gives the real picture. For example, a 10% flat rate on a loan might actually be 18-19% APR.

Why APR Matters

• True Cost Comparison: Compare loans from different banks fairly
• Informed Decisions: Know exactly what you're paying annually
• Loan Planning: Calculate actual total interest amount
• RBI Compliance: Lenders must disclose APR under lending guidelines

Flat Rate vs. Reducing Balance Rate

Flat Rate: Interest calculated on original principal. Sounds cheaper but actually higher APR.

Reducing Rate: Interest calculated on remaining balance monthly. Lower effective APR.

Example: ₹2 lakh at 10% for 5 years:

• Flat Rate: Total interest = ₹1,00,000 (Simple calculation)
• Reducing Rate: Total interest = ₹52,626 (Much less!)
• APR Impact: Flat 10% might be ~18% APR equivalent

How APR is Calculated

APR considers: Principal amount, Monthly EMI, Loan tenure, Processing fees, GST on interest. The exact formula is complex, but it essentially finds the effective yearly interest rate that makes the present value of cash flows equal to the loan amount.

Practical Loan Comparison (India Context)

• Personal Loans: Typical APR 12-18% vs. quoted flat rates of 6-10%
• Car Loans: Typical APR 8-12% vs. flat rates 6-8%
• Home Loans: APR closer to advertised rate (8-9%)
• Credit Card EMI: APR often 20-36%, much higher than monthly rates shown