While an APR or Annual Percentage Rate is a commonly used term within the lending industry, several first-time loan applicants don’t know about it. If you are planning to apply for a personal loan, here’s a guide to understanding the meaning and relevance of an APR.

What is an APR for personal loans?

When you opt for personal finance, you will come across two terms –

  • Nominal interest rate
  • Annual Percentage Rate (APR)

The nominal interest rate is the interest amount your lender charges on the total amount you have borrowed, also known as the principal l. This figure does not include expenses like processing fee, penalties, pre-closure charges (if any), which are all charged at a certain loan percentage.

In contrast, the APR amount includes the nominal interest rate, penalty, processing fee, pre-closure fee, and other applicable charges. Simply put, an Annual Percentage Rate is a combination of all payments you will make against your loan.

A lending institution will denote your APR in percentage form. This percentage depicts the actual cost of the loan or personal loan actual percentage rate during one year. You will pay this amount annually to your lender once they approve your loan.

Additional Read: Things to Consider While Choosing a Personal Loan Lender

How to calculate APR?

Gone are the days when you calculated your APR by hand. In fact, most borrowers were told their APR only once they applied for a loan.

But, today, you can simply use an APR calculator online. It will instantly tell you how much you will pay against your loan in a particular year. Here is how it works:

  • Open an APR calculator on your laptop or smartphone.
  • You will see various columns asking for your total loan amount, interest rate, processing fee, etc. Fill in all the necessary details.
  • After inputting relevant data, click on “calculate”, and you’re done.

Why is it critical to consider APRs before opting for personal finance?

When you go shopping for any product or service in life, you need to know its actual cost. The same logic applies when you are looking for personal finance. Your loan’s EMIs are not the only money you pay to a lending institution when repaying a loan. This is what makes the APR percentage important as it gives you the true and total cost of what your loan costs within a year.

Varied lenders have different formulas to calculate the APR, which can lead to a difference in the final amount. Therefore, it pays to opt for a lending institution offering a competitive APR percentage.

Additional Read: Ways to Plan Personal Loan EMI Repayment Smartly

The bottom line

Are you looking for personal finance but are unable to find a trustworthy lender? Well, then your search ends at Tata Capital. We extend personal finance at competitive personal loan interest rates and flexible repayment terms.

Enjoy easy eligibility conditions, simple documentation requirements, and swift loan processing with us. If you wish to figure out your potential EMIs with us before applying, click here and use our personal loan EMI calculator.  

To know more, reach out today!

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