APR — What Is the Annual Percentage Rate?
APR (Annual Percentage Rate) — definition, how to read it, and why it's the most important indicator of loan costs.
Definition
APR (Annual Percentage Rate) — an indicator expressed as a percentage that shows the total annual cost of a loan, accounting for not only nominal interest rate, but also fees, insurance, and other charges.
Why APR instead of interest rate?
A bank may advertise a loan with 7% interest rate, but after adding:
- Origination fee (2%)
- Mandatory insurance (0.5% annually)
- Preparation fee (200 PLN)
…the real APR will be e.g., 9.8%. APR tells the truth about loan cost.
What's included in APR?
- Nominal interest rate
- Origination fee
- Preparation fees
- Mandatory insurance costs
- Account maintenance fees (if required)
What APR doesn't include?
- Notary costs
- Property valuation fees
- Property insurance costs (unless required by bank)
- Early repayment fees
How to compare offers?
Always compare APR, not nominal interest rate. APR is the only indicator that gives "apples to apples" between offers from different banks.
Example
| Bank | Interest rate | APR |
|---|---|---|
| Bank A | 7.0% | 8.2% |
| Bank B | 7.5% | 7.9% |
Bank B has higher interest rate, but lower APR — it's cheaper because it has lower additional fees.
How Freenance can help
Freenance accounts for APR when calculating the real cost of your liabilities. You see how much you actually pay for each loan — not just the installment, but total cost over time.
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