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APR- Annual Percentage Rate

Personal Loans have become a convenient way to borrow credit for aspirational needs. Whether you want to buy an expensive bike or SUV, renovate your home, pay medical bills or plan a foreign trip, a Personal Loan can help you finance all of these. Ease of accessibility together with digitization, competitive interest rates and other factors has fuelled the Personal Loan market in India in the last few years.

However, if you are applying for a credit card or a Personal Loan for the first time, you need to be aware of a few financial terms. Knowing the difference between APR vs interest rate is important since it can help you cut down the costs associated with your loan. Let us take a look at how you can differentiate between these two and use them to your advantage while analysing loan offerings from different lending institutions.

What is Annual Percentage rate(APR)

APR refers to the yearly rate measured in percentage that you pay for borrowing funds from a lending institution. In other words, it is the annual cost of funds lent by the bank or non-banking financial institution to you for the loan duration. This annual percentage rate is also known as the expense incurred by you for the specific tenure of the loan as opted by you. Broadly, there are two APR options available to choose from:


The interest rate remains constant throughout the loan period and hence is unchanged.

Floating rate:

The annual percentage rate varies according to market conditions or other factors during the tenure of the Personal Loan.

Interest rate

This typically is what the lender charges you for borrowing the principal loan amount. It is expressed as a percentage of the original amount borrowed by you. Factors such as your loan principal, duration, the amount borrowed and repayment frequency are considered by the lending institutions to zero upon the interest rate. Different banks will offer varying interest rates to individuals as per these criteria.

APR vs interest rate

The annual percentage rate of a Personal Loan is higher than the interest rate since the former also includes the fees paid on the loan which may comprise loan processing charges, insurance fee among others. Whereas the loan interest rate does not take into account any other expenditures. It is simply the interest charged by the financial institution on the loan amount. An understanding of both these rates is crucial to strategize your loan cost and ensure that it fits in your budget.

One of the key differences between APR and interest rate is that while your monthly instalment is determined by the personal loan interest rate, the annual percentage rate decides the overall loan expense to be paid for the loan tenure. So, if you want to reduce your repayment every month, it is prudent to consider the interest rate. However, in case you are interested in how much you can save for the entire loan tenure, a comparison of the APR of different loans available in the market would give a better picture.

Choosing the right Personal Loan

While analysing APR vs interest rate, you will also need to list your loan requirements to make your choice from the plethora of loans offered by lenders with varying interest rates and APRs. The tenure of your loan can be a key factor to distinguish between APR vs interest rate and choose either accordingly. Here’s how:

1. Long-term loan:

 Since the annual percentage rate evenly distributes expenses throughout the loan, opting for one with a low APR will rule in your favour. It means that you can cut down your costs for the loan tenure considerably and increase your savings in the long run.

2. Short-term loan:

On the other hand, if you are eyeing a loan for a shorter period, paying a high-interest rate as well as APR would bode well. It might increase your one-time processing charges, however, your loan costs will turn out to be comparatively lesser for the initial few years.

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 basically means that you do not have to pay any interest during the initial loan period.

Given that the first few years of buying a down are dominated by interest payment, an interest-free period thanks to opting for a 0% introductory annual percentage rate, makes the loan more affordable.

When to opt for 0% introductory APR?

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

  • Payment of previous high 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, a bike or SUV 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 if it is being offered to you by the lender.


Knowledge of APR vs interest rate and using this understanding to your advantage when choosing the right Personal Loan that suits your needs can help you make a financially sound decision. You can compare loans online against the interest rates, processing fees, pre-payment fine, annual percentage rate and other features as per your preferences and make an informed choice.

In addition, when you apply for a Personal Loan available on Finserv MARKETS, you get a high loan amount, flexible repayment options, and attractive interest rates among other benefits. Customise your loan as per your needs by choosing a repayment duration between 12 months to 5 years and get up to Rs. 25 Lakhs. So whether you are renovating your home, planning a wedding or travel itinerary, a Personal Loan is your key to financial independence. 

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