What is APR?
The Annual Percentage Rate is the all-inclusive annual cost of a loan: interest plus processing fees, GST on fees, insurance premiums and other charges, expressed as a single annual rate. RBI's Key Fact Statement guidelines require banks and NBFCs to disclose APR for all retail and MSME loans so that borrowers can compare offers on one number instead of being swayed by a low headline rate. This calculator computes APR the way lenders must — as the internal rate of return of the actual cash flows.
How the APR is computed
The borrower effectively receives the loan amount minus upfront charges and then pays the EMIs. The monthly rate at which the present value of EMIs equals the net disbursement is found by IRR; multiplying by 12 gives the APR, and compounding it gives the effective annual rate.
Worked example
₹10,00,000 personal loan at 9% for 5 years with a 1% processing fee + 18% GST and ₹5,000 insurance: EMI ₹20,758; upfront charges ₹16,800; net disbursement ₹9,83,200. The IRR of these cash flows gives an APR of about 9.73% versus the 9% headline — the fees add nearly three-quarters of a percentage point. On a 2-year loan the same fees would push APR to about 10.7%, which is why fees matter more for short tenures.
Nominal vs effective rate
A nominal rate is the quoted annual rate; the effective rate is what you actually earn or pay after compounding within the year: EAR = (1 + r ÷ m)m − 1. A 9% nominal rate compounded monthly is 9.38% effective; quarterly 9.31%; daily 9.42%. Use the Nominal → Effective and Effective → Nominal modes to convert between them for any compounding frequency, including continuous compounding.
When to use which
- Comparing loan offers with different fees: APR mode.
- Comparing FD rates quoted with different compounding: Nominal → Effective.
- Working back from an advertised annualised yield to the bank's nominal rate: Effective → Nominal.
- Credit cards: 3% per month is 36% nominal but 42.6% effective.
The doughnut chart splits your total outgo into principal, interest and charges so you can see how much of the cost is fees.
Frequently Asked Questions
Why is APR higher than the interest rate on my sanction letter?
Because APR spreads the processing fee, GST and other charges over the tenure. The lender must disclose it in the Key Fact Statement.
What is the difference between nominal and effective interest rate?
Nominal is the quoted annual rate; effective accounts for compounding within the year. 12% compounded monthly is 12.68% effective.
Do shorter loans have a higher APR?
For the same fees, yes — the fixed upfront cost is recovered over fewer months, so its annualised impact is larger.
Is GST charged on loan processing fees?
Yes, 18% GST applies to processing fees and most other bank charges, and should be included in the APR calculation.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.