What is the APRC? – How to count Answer in the text!
A recent survey of the Warsaw Institute of Banking and the Warsaw Stock Exchange Foundation confirmed that Poles still know little about finance. One of the most mysterious terms is the APRC. What is this? The actual Annual Interest Rate indicates the total cost of the loan that the customer will have to pay. What factors influence the APRC amount and is it a good parameter for comparing credit offers? We invite you to read!
What is the APRC?
The APRC, as defined by the Consumer Credit Act, is “the total cost of credit for the consumer, expressed as a percentage of the total loan amount per annum.” The actual Annual Interest Rate therefore determines how much an online credit or loan will cost us.
It is not the same as RSO! The annual interest rate only indicates the amount of interest on the loan. Does not include any other fees. APRC is a much more important indicator because it covers most of the loan costs that the customer will be required to pay.
What affects the amount of APRC?
The Annual Real Interest Rate includes:
- loan interest rate,
- costs related to the consideration of the application,
- commission for granting a loan,
- credit insurance,
- other credit fees.
It gives an almost complete picture of expenses related to obtaining a loan. Why “almost”? The APRC does not include all fees that the borrower will incur. It does not apply to the costs of additional services (such services which are NOT necessary to purchase) and to notary fees, e.g. for mortgage loans. Now that we know what the Real Annual Interest Rate means, it’s time to move on to the topic of APRC calculation.
How to calculate the APRC?
Can I calculate the APRC myself? Certainly, this is not a simple task, which we will see soon, analyzing the following APRC formula:What do the different symbols mean?
K – number of the next loan installment payment,
K ‘- the number of the next loan repayment or payment,
AK – loan installment payment amount,
A’K ‘- loan repayment amount or costs K’,
∑ – sum, m – number of the last loan installment payment,
m ‘- the number of the last loan repayment or payment,
tK – the period, expressed in years or fractions of a year, between the date of the first payment and the day of each subsequent payment, therefore t1 = 0,
tK ‘- the period, expressed in years or fractions of a year, between the date of the first payment and the date of each repayment or payment of fees,
and – the actual annual interest rate.
The Consumer Credit Act unified the method of calculating the APRC in accordance with the applicable European Directive. From 2012, the APRC for loans taken out at the bank and any other financial institution calculated equally. Therefore, today the APRC formula is universal and applies equally to payday loans, cash loans and mortgages.
Calculating the total cost of the loan will be much easier if we use the cash loan calculator. We will know not only the APRC value, but also the exact installment amount. With the help of a calculator, we will also set a loan repayment schedule, which will be a significant help in planning your home budget.
It happens that depending on the calculator chosen, the settlements differ slightly. Hence, we are pleased that the obligation to calculate the APRC does not rest with the clients, but with the lenders! Each institution granting credits or loans is obliged to determine the amount of APRC for each offer. In accordance with applicable law, the value of the APRC must be provided in an unambiguous, understandable and visible manner, both in advertising materials and in the information form.
The lowest APRC is not always the best, i.e. why not base your decisions on the APRC?
The lowest APRC does not always indicate the cheapest cash loan. It may turn out that a loan with a higher Actual Annual Interest Rate is more favorable to us. How is this possible?
In addition to the APRC, the loan period and the time value of money should also be taken into account. The shorter the amount of capital borrowed, the higher the APRC ratio is and vice versa. Therefore, only products with identical parameters should be compared. We cannot combine loans for the same amount but with a different repayment period!
We will show it by example. We borrow PLN 1,000 for 12 months, at an interest rate of 10%. By deciding to repay the whole in one installment, at the end of the loan period we give away PLN 1000 of capital and PLN 100 of interest. In turn, when repaying the loan in 12 installments, we pay a certain portion of the debt every month, together with interest calculated on the outstanding amount. The monthly repayment of installments reduces the capital on which interest is calculated, which is why their sum ultimately turns out to be smaller!
How do you compare loans and advances?
APRC is an important, but not the only, parameter that we must consider when comparing loans. When considering choosing a specific offer, it is necessary to pay attention to:
- loan period. Let’s compare loan offers with the same repayment time!
- installment type Ultimately, equal installments are more expensive than decreasing installments, because we pay back capital more slowly. They give a greater sense of security, but are definitely more expensive!
- commission and insurance. Financial institutions do not always include these costs in the APRC.
The amount of installments is also of key importance. The amount that we will repay every month can not significantly affect the household budget. Otherwise, sooner or later we will run into financial trouble.
All information on the cost of loans and borrowings can always be found in the information form. Let’s analyze the fees before signing the contract to make sure that we are making the right decision!
Is the APRC 0% possible?
Reviewing the ranking of payday loans, the first thing that catches our eye is payday payday with the APRC 0%. How is this possible? Loans with an APRC of 0 are only granted to new customers! We will not pay any additional costs, provided that we return the debt within a specified period. Any delay results in billing according to the table of fees attached to the contract.
Banks are also starting to come out with free credit offers. This proposal also applies only to new customers who sign a loan agreement with a bank for the first time. To submit an application, he encourages, among others Camin Bank, offering a loan of up to PLN 4,000 for a period of 10 months with APRC, a commission and an interest rate of 0!
It is worth paying attention to such offers and taking loans that are most profitable for us. We give back exactly as we borrowed, and we use the cash for any purposes and needs.