Everyone who has even had the opportunity to take advantage of a loan or credit has certainly met the concept of APRC – i.e. the actual annual interest rate. Its value is always contained in the contract signed with the institution granting the loan, regardless of whether it is a traditional bank or a lender from the non-banking sector. This is a legal requirement. What is the APRC loan? How is the Real Annual Interest Rate calculated and what costs are included in it? Is this value really an indicator of the interest rate on each loan?
Actual Annual Interest Rate
APRC or Actual Annual Interest Rate is the value that includes all the costs of the loan, not just its nominal interest rate. In this sense, the indicator allows you to more accurately determine the total cost of credit and can be very helpful. It happens that the consumer chooses between two loans with a similar interest rate, however, the one with a slightly higher one will be more profitable – the customer will still refund the bank less money than in the case of an alternative, lower-interest loan.
How do you calculate the APRC before taking a loan ?
What is the APRC, and specifically what additional fees are considered to calculate the Actual Annual Interest Rate? The interest rate on the loan is only the basic cost. The commission that we pay to the bank or loan institution for granting the loan should also be added to it. In the case of traditional banks, loan insurance is an additional cost. The more serious the loan is, the more extra costs it accompanies.
In the case of a mortgage, they will be, for example, the cost of valuating the property. Before taking a loan, it is worth asking the bank exactly what exactly is included in the APRC. This is a statutory obligation. Only when we take into account all costs will we find out how much we pay for the loan annually. In the case of loans in loan companies, the matter is a bit simpler, because it is about smaller amounts, and above all the costs are only a one-time commission and interest rate. Therefore, customers can count on higher transparency.
What does the APRC say about the loan?
Is the Actual Annual Interest Rate really a value to look out for when analyzing a loan offer? When it comes to bank loans, the APRC indicator can be very useful indeed, and thanks to it it sometimes turns out that an unattractive offer becomes the most advantageous for the client.
However, the issue of shorter loans should be viewed differently. Especially in the case of payday loans, whose repayment period is, for example, 1 month, and the borrowed sum is relatively low, so the commission is relatively high. The APRC indicator then adopts “cosmic” values exceeding, for example, 1000% and is of little use to the consumer. Interestingly, the Real Annual Interest Rate increases significantly with a shorter repayment period. So taking a payday loan or a small loan, it’s not worth thinking about this factor.