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APR meaning in loan: the yearly cost with fees included

APR meaning in loan: APR is the Annual Percentage Rate, the yearly cost of credit including the interest rate and all other charges, such as the processing fee. RBI requires lenders to show it in the Key Fact Statement. Because it adds fees to interest, APR is the fair figure for comparing two loan offers.

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APR meaning in loan offers

RBI defines APR as "the annual cost of credit to the borrower which includes interest rate and all other charges associated with the credit facility" (RBI notification). The APR appears in the Key Fact Statement for loans covered by that rule (RBI notification, 15-Apr-2024).

How lenders use APR

The interest rate tells you what the money costs. The APR tells you what the loan costs. When a fee is deducted upfront, you receive less money but repay the same EMIs, so the real yearly cost rises above the interest rate.

Example

Example loan: ₹10,00,000 over 36 months at an example rate of 14%, EMI ₹34,178 (Standard loan EMI formula). One lender publishes a processing fee of up to 2% (Kotak Mahindra Bank). A 2% fee is ₹20,000, so ₹9,80,000 reaches you while the EMI stays ₹34,178. The APR is therefore above 14%. The exact figure depends on taxes and other charges, which is why you read it from the KFS.

Frequently asked questions

Annual Percentage Rate.

When the loan carries fees, yes. With no fees or charges at all, the two match.

On APR, because it includes the fees one lender may charge and another may not.

Sources

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