Why is the APRC not a good indicator of the attractiveness of loan companies’ offers?

Finding the best non-bank loan involves analyzing the various offers. Take into account not only the repayment terms and requirements for customers but also the fees added to the basic amount.

This indicator is referred to as the APRC, which many people confuse with the nominal interest rate. What is worth knowing about these parameters?

Nominal interest rate and APRC

Nominal interest rate and APRC

Financial institutions are required to inform customers of all costs that affect the repayment schedule. Many people are attracted by the nominal interest rate, which only determines the amount of interest on an annual basis. APRC is a much broader indicator and includes all loan costs, such as:

  • nominal interest rate,
  • commissions,
  • additional fees,
  • insurance.

And what does the APRC not include? Notary fees and the cost of additional services that are not directly related to the loan, such as setting up a bank account or credit card, are not included in this indicator.

Why is the APRC higher than the interest rate?

Analyzing individual offers, it can be seen that the APRC is often higher than the interest rate. This is the case with cash loans repaid in installments because the capital made available is stretched over time. Therefore, it includes all the costs of debt, which are repaid gradually. Only in the case of a one-off repayment of the entire liability, the APRC would be equal to the interest rate.

How to calculate the APRC?

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A special mathematical formula is used to calculate the APRC height, but it is quite complicated and easy to make a mistake with. A better way is to use the APRC calculator, which can be easily found on the internet. In order to make calculations, it is enough to complete such data as:

  • cash loan amount,
  • repayment period,
  • interest,
  • commissions,
  • other costs,
  • installment type

On this basis, the calculator will calculate the APRC, which can help you choose the cheapest loan.

APRC – how does it affect the loan?

The actual Annual Interest Rate defines how the debt costs of the selected loan are presented. However, this is not a reliable indicator on the basis of which you can choose the cheapest offer. It all depends on the repayment period, so comparing a short-term payday loan with a long-term loan does not make sense. The longer the loan period, the higher the APRC will be for the same amount as it is spread over time.

APRC is also not a good indicator of attractiveness in the case of loans repaid in various installments. This means that a comparison of a cash loan with decreasing installments with a fixed installment will not give a reliable assessment. The best solution in finding the cheapest offer is to use the online comparison site. At Good Finance you can check which among the loans with the same parameters is the most advantageous option.

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