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What Does Annual Percentage Rate Mean?

APR (Annual Percentage Rate) is a term that helps indicate the total cost incurred on the loan. The amount is calculated based on the annual interest rate and miscellaneous expenses.


The APR includes all the fees and charges related to your loan, including processing fee, insurance costs, administrative fee(s), and more. This method of loan cost calculation helps borrowers obtain an accurate figure on the total cost of a given loan. APR is categorized into two types, i.e. representative and personal. As the name suggests, representative APR is calculated based on the annual interest rate as advertised by the lender. 


On the other hand, personal APR is driven by the annual interest rate as levied by the lender based on your financial profile and eligibility. When calculating the APR, you must note that the personal APR may be higher or lower than the representative APR depending on your profile's credentials.

How Does APR Work and How to Calculate APR?

The ARP is the total annual cost incurred through a loan and is expressed in percentage. The calculation enables you to understand the actual cost of borrowing a loan for a given year. Financial experts encourage borrowers to calculate the APR before getting a loan as it allows you to understand the actual outgo throughout the year and make better financial choices.

To calculate APR, you can use the following formula.


Annual Percentage Rate Calculation Formula:


ARP = [{(Fees+Interest)/Principal}/n]*365*100, where ‘n’ stands for loan tenor in days.

Why do you Need to Know the Annual Percentage Rate?

Annual Percentage Rate allows you to have a clear understanding of the true cost of a loan. Apart from helping you make wise financial decisions, it also lets you compare the different loan offerings.


Let’s say you receive an offer from a lender with lucrative benefits; the APR will help you weigh the benefits rather than just going by the loan's face value. However, you must note that APR is not practical with a floating rate of interest.

What is a Good Annual Percentage Rate?

Simply put, a low APR is what you must be looking for. However, it would help to establish a good balance between a reasonable APR and the best loan features. A good APR for another borrower may not be the right one for you. Hence, it is essential to make the calculations and use the same to conduct a viable comparison.


Identify loan offerings that meet the average ARP and also those that carry good benefits. This way, you will be able to secure affordable APR loans, like those curated through Bajaj Markets. Enjoy big-benefit loans with reasonable interest rates and long-term benefits such as digital provisions, excellent customer service, and more.

What is 0% Introductory APR?

You might have come across this term during your research on Personal Loans offered by different lenders. It is a financial incentive offered to borrowers, which essentially means that you do not have to pay any interest during the initial loan period. Given that the first few years of buying a house are dominated by interest payment, an interest-free period, thanks to opting for a 0% introductory annual percentage rate, makes a loan more affordable.

When to Opt for 0% Introductory APR?

There are several instances wherein it makes sense to go for a loan with negligible introductory APR, such as:

  • Payment of previous debts such as a loan or credit card dues

  • Expensive emergency expenses such as medical treatment of a chronic condition, repair of your bike or car after an accident, or international flight bookings

  • One-time high purchase such as a vacation abroad, purchasing a bike or car with a hefty price, or electronic items for refurbishing your new home


So, if you are applying for a loan to meet any of the needs outlined above, you should utilise 0% introductory APR to decrease your loan expenditure.

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