The rate on your loan sanction letter is not the full story.
About this calculator
The rate on your loan sanction letter is not the full story. Banks and NBFCs quote a nominal interest rate, but processing fees, admin charges and GST on those fees mean you receive less cash than the sanctioned amount while repaying EMIs calculated on the full principal. APR — annual percentage rate — captures that gap in a single number you can compare across lenders.
This calculator uses fee-adjusted principal: net proceeds equal loan amount minus upfront fees. It computes the EMI at the nominal rate, then solves iteratively for the APR where the present value of all EMIs equals net proceeds. The difference between APR and nominal rate tells you how much the fees add to your true borrowing cost.
On a ₹10 lakh personal loan at 10.5% for 5 years with ₹15,000 in fees, APR is typically 0.3–0.6 points above the headline rate. That sounds small but on a 5-year loan it adds thousands in effective cost. Always compare APR when choosing between two offers with different fee structures. Use [[refinance]] if you are moving an existing loan, and [[credit-card-min-due-trap]] to see how APR works on revolving credit.
Common uses
- Comparing two personal loan offers with different rates and processing fees
- Checking the true cost of a ₹5–20L business loan after 1–2% processing charge
- Explaining to a co-borrower why 10.5% quoted is not the same as 10.5% APR
- Evaluating whether a zero-fee offer at a slightly higher rate beats a low-rate offer with fees
- Calculating effective borrowing cost before signing a loan agreement
Frequently asked questions
What is the difference between APR and nominal interest rate?
Nominal rate is the headline rate on your loan agreement. APR includes upfront fees by measuring what you actually receive versus what you repay. APR is always equal to or higher than the nominal rate when fees exist.
How much do processing fees increase APR on a personal loan?
On a ₹10L loan at 10.5% for 5 years, ₹15,000 in fees (1.5%) typically pushes APR to about 10.9–11.1%. Shorter tenures and larger fee percentages widen the gap more.
Should I compare loans by nominal rate or APR?
Compare APR when fees differ between lenders. If one bank charges 0.5% processing and another charges 2%, the lower nominal rate may not be the cheaper loan. APR normalises that difference.
Are GST charges on processing fees included in APR?
Yes — include the full out-of-pocket cost: processing fee plus GST and any admin or documentation charges paid before disbursement. Omitting GST understates your true APR.
Does APR apply to floating-rate home loans?
APR is most useful for fixed-fee term loans like personal, business and car loans. Floating home loans have changing rates, so APR on day one is a snapshot — still useful for comparing initial offers with different processing fees.