What is APR (annual percentage rate)?
The all-in cost of a loan, expressed as a yearly rate.
The true yearly cost of borrowing, counting the interest AND every charge the lender recovers from the borrower. The headline interest rate prices only the money; the APR prices the whole arrangement, which is why the two are rarely the same number and why the Key Facts Statement asks for the second one.
How is APR calculated?
It is not a formula you can type — it is solved for. Take what the borrower actually RECEIVES (the sanctioned amount less anything deducted up front), and the instalments they actually pay. The APR is the rate at which those instalments, discounted back, equal what was received. There is no closed-form answer, so a lending system searches for it numerically.
APR: a worked example
₹5,00,000 at 18% over 24 months, with a 2% processing fee deducted at disbursement. The borrower receives ₹4,90,000 but repays as though they had received ₹5,00,000. The interest rate is still 18%; the APR is above it, because the same instalments are now buying less money. Shorten the tenor and the gap widens — the fee is spread over fewer months.
Why does APR matter?
Two loans quoted at the same rate can cost meaningfully different amounts, and the APR is the only number that shows it. It is also the number a borrower can hold the lender to: a charge left out of the disclosure is a charge that cannot be recovered later.
What the regulations say about APR
The Key Facts Statement requires the APR in a prescribed format, computed from the actual cash flows and inclusive of all charges recovered from the borrower — including a fee collected by a third party on the lender's behalf.
What a lending system has to do about APR
The APR is solved for rather than entered, from the loan's own schedule and its upfront charges, and printed on the generated Key Facts Statement. This matters more than it sounds: a typed APR sits next to a printed repayment schedule that was produced separately, and the day the two disagree, the borrower is holding both.
Related terms
- KFS (Key Facts Statement) — A standard-format summary of what a loan actually costs.
- EMI (equated monthly instalment) — A fixed monthly payment covering both interest and principal.
- Penal charges — What a lender may levy for a default — as a charge, not as extra interest.
From the people who wrote this
Run your lending on Lenviq
The section above describes what a lending system has to do about this term. Lenviq does it — on every account, computed at day-end, with the direction it comes from recorded against it.
Lenviq is loan origination, servicing and accounting for NBFCs, built by FastLegal Technologies.