The APR on a Key Facts Statement is a computation, not a field
CA Anil Agarwal · Regulatory · 2026-08-11 · 6 min read (estimated)
The annual percentage rate on a Key Facts Statement is the all-in annualised cost of the credit, computed on the money the borrower actually received — interest plus every charge the lender recovers from them, including a fee netted off at disbursement. It is not the interest rate, and a KFS on which the two are equal is either a loan with no charges at all or a computation that skipped some.
The Key Facts Statement gives a retail or MSME borrower one page they can compare across lenders. The comparison only works if the annual percentage rate on it is computed the same way everywhere, which is why the requirement specifies what goes into it rather than leaving it to the lender.
What does the APR have to include?
The APR is the all-in annualised cost of credit including every charge levied by the lender and recovered from the borrower. It is not the interest rate, and a KFS on which the APR equals the interest rate is either a loan with no charges at all or a computation that skipped some.
Three charges that get left out
The fee deducted at disbursement. A processing fee netted off the payout does not feel like a charge to the borrower — they simply receive less. It is a charge, the borrower funded it, and it belongs in the APR. It also means the borrower's effective cost is higher than a fee collected separately would produce, because they are paying interest on an amount they never received.
Insurance premium recovered through the loan. If it is recovered from the borrower it counts, regardless of who the policy is with.
Charges collected by a third party on the lender's behalf. The test is whether the borrower pays it as a condition of the credit, not who banks it.
Statutory levies and genuine pass-through recoveries that the lender does not retain are treated separately — but "we do not retain it" is a fact to be able to evidence, not an assumption.
Why a reproducible APR is a systems question
An APR is only reproducible if the charges that fed it are frozen with the loan. If the KFS quotes today's charge master and the charge master has since changed, the document cannot be regenerated — and the borrower's copy and the lender's copy will disagree, with no way to establish which was right.
The KFS is issued once, at sanction. Storing the computed figures alongside the terms they were computed from is what makes it a statement of fact rather than a rendering.
What is in, and what is out
| In the APR | Disclosed elsewhere | |
|---|---|---|
| Contracted interest | ✓ | — |
| Processing / documentation fee | ✓ | — |
| Fee deducted at disbursement | ✓ (and it raises the APR more) | — |
| Insurance premium financed by the lender | ✓ | — |
| GST on the lender's own charges | ✓ | — |
| Penal charges | ✗ | Contingent charges |
| Bounce charges | ✗ | Contingent charges |
| Foreclosure / prepayment charges | ✗ | Contingent charges |
| Statutory levies genuinely passed through | ✗ | Disclosed as pass-through |
Contingent charges are excluded because the APR prices the loan as contracted, not as defaulted. A borrower comparing two offers is comparing the cost of performing, and folding a hypothetical default into it would make the comparison meaningless.
A worked example
₹5,00,000 for 12 months at 12% a year. Processing fee 2% — ₹10,000 — plus GST of ₹1,800, both deducted at disbursement.
- The borrower receives ₹4,88,200.
- The instalment is computed on ₹5,00,000: ₹44,424.39 a month for twelve months.
- The APR is the rate that equates ₹4,88,200 received today with twelve payments of ₹44,424.39.
It is materially above 12%, because the borrower is repaying on a principal larger than they received. A KFS printing "APR: 12%" is contradicted by the amortisation schedule three inches below it, and a borrower's counsel reads both.
Move the same fee into the instalments rather than deducting it at disbursement and the APR falls, because the borrower had the full ₹5,00,000 to use. Same total cost, different APR — which is exactly the difference the disclosure exists to surface.
Common mistakes
- A typed APR. It will contradict the schedule on the same page.
- Computing on the sanctioned amount rather than the net disbursal. Understates the rate whenever
a fee is deducted upfront.
- Omitting GST on the lender's own charges. The borrower paid it, as a condition of the credit.
- Including penal charges. Contingent; they belong in their own block.
- Regenerating the KFS from today's charge master. Produces a document the borrower has never
seen.
- A charge in the agreement but not in the KFS. Not recoverable at all.
- "Other charges as applicable". Not a disclosure.
Frequently asked questions
Is the APR the same as the interest rate?
No. The interest rate is what is charged on the principal; the APR annualises the total cost including the lender's fees, computed on the cash the borrower actually received. Where a fee is deducted at disbursement the gap between them is the point of the disclosure.
Should penal charges be included in the APR?
No. They are contingent — they arise only if the borrower defaults — so they are disclosed in the contingent-charges block with the circumstances that trigger them. The APR represents the cost of the loan as contracted.
What about charges collected on behalf of a third party?
The test is whether the borrower pays it as a condition of the credit and whether the lender retains it. A genuine pass-through that the lender does not retain is disclosed as such rather than folded into the APR — but "we do not retain it" is a fact to be able to evidence, not an assumption.
Why must the APR be computed rather than entered?
Because it depends on the actual cash flows — the net disbursal against the instalment stream — and those differ per loan with the fee structure. Any number typed into a template is a guess that the schedule printed alongside it will eventually contradict.
Can the KFS be reproduced years later?
Only if the terms and charges it was computed from were frozen onto the loan at sanction. If the document is regenerated from today's masters it will differ from the borrower's copy, and there will be no way to establish which was right.
Related reading: The Key Facts Statement requirement · Terms are frozen at sanction · Penal charges are charges · RBI compliance for NBFCs
Ask for a demonstration — bring a live loan's terms and we will generate the statement from them.
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