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Annual Percentage Rate Calculator
Annual Percentage RateCalculator

APR Calculator

Loans with the lowest interest rates may not always be the ideal option for you. Simply taking into account the advertised interest rate while calculating the interest cost may not actually reflect the accurate cost of borrowing. As a matter of fact, this calculation does not include subsidiary costs that are involved when you take out a loan. Hence, what you get at the end of the process of calculation is the cost of the loan that is seemingly higher than the advertised interest rates.

This can be corrected by having a standardized computation process in place that can help determine the actual cost of borrowing prior to taking out the loan.

What is meant by Annual Percentage Rate (APR)?

APR or the Annual Percentage Rate is a standardized computation process that helps in calculating the cost of actual borrowing over a designated period of time. The computation is reflected as a percentage that represents the annual cost of the loan that is charged to the borrower.

The calculation considers relevant fees and charges that are applicable to a loan along with the nominal interest rate. That said, it does not take compounding into account when calculating the true cost of interest on the loan.

While the APR offers loan applicants with the bottom line number, the figure will generally be equal to or higher than the nominal interest rate charged on a loan. However, the percentage helps in a more accurate comparison between lenders and loan products that will help you make an informed decision.

APR Calculator

To know the annual percentage rate of your loan, you can use our free online APR calculator.

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Disclaimer: The above values are for demonstrative purposes only. Please note that actual values may vary, depending on various parameters including the loan terms and Grihashakti's policy at the time of loan application. All loan approvals are subject to the discretion of Grihashakti.

How to use the APR Calculator?

Here are the steps to use our Annual Percentage Rate Calculator.

  • Enter your loan amount in rupees.
  • Enter the rate of interest (enter the percentage)
  • Enter the tenure in months
  • Enter the additional fees amount. This refers to the total amount contributing to the cost of your loan such as processing fees and insurance.
  • You can see the APR of your loan on the right side of the calculator.

To know the values of the above mentioned points, please refer to your loan agreement copy in case of an existing customer or the fees and charges applicable to a prospective customer in line with the published terms and conditions

How is Annual Percentage Rate or APR Calculated?

There are multiple factors that come into play when taking out a loan. These parameters should be aligned in order to ensure that there is no severe impact on your long term finances.

Three important factors are selecting the appropriate loan product, combining it with the right lending partner and the prevailing interest rate. Based on the interest rate as well as the fees and charges, the APR calculator helps in determining the loan’s APR value. This acts as a comparative figure when you are looking at various loan products and offers by multiple lenders.

The APR is calculated by taking into account the following factors:

  • Loan Amount – How much does the applicant plan to borrow
  • Fees & Charges – All applicable fees and charges required to be paid to the lender to service the loan
  • Rate of Interest – The interest rate applicable on the loan as imposed by the chosen lender
  • Term – The number of months or years that has been designated as the repayment period

The formula for calculating APR is:

APR= [{(Fees + Interest)/ Principal}/ n]*365*100

Interest - total interest to be paid during the loan tenure

n - tenure of the loan in days

Let’s understand this better with the help of an example.

Mr Rajesh is looking to take out a loan of Rs. 10 lakhs with a repayment tenure of 3 years. The applicable interest rate on the loan is 15%. Additionally, a one-time processing fee of 1.5% is applicable along with an Rs. 5000 insurance cost. Hence, the calculation of the APR will be as follows:

  • Cost of processing fee – Rs. 15,000
  • Cost of insurance – Rs. 5000
  • Cost of interest – Rs. 5,00,000

APR = [{(15,000+5,00,000)/10,00,000}/1095]*365*100 = 17.17%

Therefore, the accurate cost of the loan is 17.17% across the 3 year loan repayment tenure. Compared to the 15% interest rate, the APR is a greater value.

APR is not a foolproof method and comes with its own set of drawbacks. The formula does not work with floating interest rates and is not ideal if you are taking out a short term loan. It is also important to note that the APR value can change post taking out the loan.

Why is the APR important?

Irrespective of the shortcomings, APR works as an important tool that helps the prospective loan applicant gauge the true cost of borrowing. In most cases, lenders typically do not reveal the total cost and only advertise the rate of interest. Fees and additional charges are listed as separate line items. APR acts as an extremely useful computation method when applicants are taking out a home loan or a loan against property. With long term repayment tenures of generally 20 years or more, the rate or processing fee and additional charges add on to a substantial part of the overall cost.

Final Takeaways

The Annual Percentage Rate is a great method to have a comprehensive understanding of the cost you are about to entail by taking out a loan. It also gives you the necessary insight into the loan products along with the lenders. This information definitely helps you to make a smart decision when choosing the financial product and your lending partner.

Grihashakti offers property loans (residential and commercial property) at reasonable interest rates. Apply today to know more.

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