What is the APR?

The annual percentage rate (APR) or effective annual interest rate covers the concept of annual expenses as a percentage and consists of commissions, fees for the institution, any monthly payments, as well as interest on the loan. Thus, the APR shows the cost of the loan per year. If two loans have the same annual interest rate, it is always better to have an annual interest rate that consists mainly of interest than the one that consists of the largest number of commissions, since the interest is deducted from the amount of your tax. In general, a loan with the highest interest rate in annual income will result in a lower annual interest rate after taxes.

Knowing the annual percentage rate, you will know in advance how much you will actually have to pay for using the loan. Sometimes some credit organizations use a clever advertising move, offering loans at very low interest rates or even a so-called “interest-free loan”. In such cases, you should think about and check what hidden payments and commissions will be indicated in the contract. Most likely, such an “interest-free” loan will cost you more than a regular loan.

The annual percentage rate is the most important factor for assessing the cost of a loan, for this reason, we try to indicate the APR for all loan offers, so that it would be easier for you to compare them.

The annual percentage rate can vary greatly depending on what kind of loan you take out. For mortgages, the annual percentage rate will most often be relatively low, while for consumer loans it is higher, and for fast loans it is the highest. This makes the latter the most expensive loans. When the annual percentage rate is high, it is important to carefully check whether you can afford a loan. You must have considerable financial freedom to be able to pay off a consumer loan with a high annual interest rate.

The calculation of the annual percentage rate is quite complicated. In addition to the nominal interest rate, it depends on the repayment scheme, the number of days in the month taken for calculation, all kinds of commissions for issuing and servicing a loan, the amount of insurance payments, the loan term and much more. Therefore, at present, all credit institutions are required to specify in the contract the amount of the effective annual percentage rate on the loan.