November 6, 2020

# Consumer credit: APR calculation – calculator, formula, example

The APRC, or annual percentage rate of charge, is the most important indicator of the cost of a loan. It gives a percentage of the total amount owed by the client within one year and thus allows the loan to be assessed for profitability.

## What is the formula for calculating the APRC on consumer credit and what does the term cover? In the case of bank and non-bank loans, it is difficult to compare individual offers on the basis of interest rates only. By signing the contract, the client undertakes to pay many other bank charges:

• for concluding the contract
• account maintenance
• for credit management
• for the first increased installment
• for transfers of funds
• etc.

When concluding a consumer loan it is very important to know the APRC, which includes both interest rates and other additional charges.

## The formula for calculating the APRC The annual percentage rate of charge can be calculated using the following formula :

Where:

• S is the total present value of cash flows
• A k is the sum of all cash flows
• t k is the time elapsed since granting the loan (expressed in years)
• X is the annual percentage rate of charge

In this equation, we look for X (APR) such that S (total present value of cash flows) is zero.

## How to calculate APR – example Calculating the above equation would be a lengthy process. Therefore it is better to use a calculator for calculating the APR, which will greatly facilitate the work. It is possible to find out the APR easily and quickly in a well-arranged APR calculator on the Good Finance’s website.

## Here are some examples for calculating the APRC: The first two examples are ordinary bank loans, example number 3 is a non-bank microloan.

APR calculation – example 1:

• Loan amount: 100 000 USD
• Interest rate: 11%
• Number of installments: 36
• Loan fee: USD 1,000
• Monthly payment: 3 274 USD

The annual percentage rate of charge, in this case, will be 12.4%.

APR calculation – example 2:

• Loan amount: 150 000 USD
• Interest rate: 9,9%
• Number of installments: 60
• Monthly payment: 3 180 USD

The annual percentage rate of charge, in this case, will be 10.4%.

APR calculation – example 3:

• Loan amount: USD 9,000
• Interest rate: 69%
• Number of installments: 9
• Monthly installment: USD 1,000

The annual percentage rate of charge, in this case, will be 97.4%.

Under the Consumer Credit Act, each lender is obliged to inform the APRC of the annual amount. This is the most important parameter that a loan applicant should follow when deciding between individual offers of banking or non-banking companies, as it indicates the actual price the client will pay for the loan as a result.