APRC, i.e. the actual annual interest rate. What is worth knowing about this indicator? What values make up the APRC? Does it really give a clear picture of how much money the borrower or borrower will have to give back?
APRC – what does this indicator consist of?
The actual Annual Interest Rate is a value which, according to EU law, must be provided in all contracts related to taking out online loans, loans at stationary outlets, as well as consumer loans. If you look more closely at TV commercials, there is a very good chance that you will also come across such information.
This indicator may have a different level, its size is primarily made up of credit costs, and can be e.g. insurance premiums, interest, commission, various additional fees, etc. Calculating the APRC level for an average consumer is not a simple task, because to get this result, one should use a particularly non-intuitive formula that can be found in the Consumer Credit Act.
APRC level and loan cost assessment
What gives this result? Does this mean that based on the APRC size, you can assess which of the short-term loans or credits is more profitable? Unfortunately, this is not so simple. It should be remembered that the APRC is only a comparative indicator of the prices of loans and borrowings, and is often confused with the interest rate or the total cost, which it is not.
What determines the level of this indicator? In addition to the amount borrowed and the cost of the loan itself, it depends primarily on the duration of the contract. For example, in Provident for an online loan with PLN 2,500 repaid in six installments, the total cost of the loan will be PLN 1,066.4 at APR 262.59%, while the total cost of the same loan repaid in 36 installments will amount to PLN 3,296.36 at APR level 90.48%. This shows that the APRC indicator can be misleading for the borrower.
It should also be remembered that the APRC does not answer the question how much a loan costs. It cannot be said that 20 percent APRC means that the loan costs 20 percent. total borrowed amount. Using the APRC to compare loans is best when you compare loan and loan offers for the same period with the same loan amount.