If we want to take a loan, then of course we want to know its total costs right away. However, many people pay attention only to the repayment period and the interest rate. It turns out that another factor is equally important, which is hidden under the somewhat mysterious abbreviation APRC. Let’s see why it is so important when making a financial commitment.
APRC, or what is it?
This abbreviation means the Real Annual Interest Rate and should not be equated with the given interest rate, which often tempts potential borrowers to take advantage of a given offer. Unfortunately, but the difference between APRC and ordinary interest rate can be quite big and it is worth remembering. The APRC just informs us how much a particular loan will cost us, because it is its real cost . In other words, it is a factor for calculating the current cost of a loan (or loan, as it also applies to banking sector products). Therefore, when choosing a loan offer, we must pay attention to the APRC. Only in this way will we know how much you really have to pay back.
What does the APRC cover?
Only in the case of the first free loan offer we give back exactly what we borrowed. It’s easy to verify that the promotion is real. Just look at the APRC and everything is clear. If it is 0%, then we are dealing with a really free loan.
The Real Annual Interest Rate consists primarily of the applicable nominal interest rate of the loan or credit, commission for the lender, repayment period and possible insurance. In the case of banks, there are often other issues related to the provision of a specific credit service, ie fees for merely examining the loan application. The mortgage loan also includes property valuation costs. What’s more, the time value of money, which is variable, turns out to be an extremely important factor taken into account within the APRC. It’s about how long we have borrowed money. The rule is that the longer the loan or credit period, the lower the APRC.
It is best to illustrate this with the example of a mortgage, if only interest (with no commission or other fees) is accrued with it. Theoretically, it seems that the APRC of such a loan should be equal to the nominal interest rate. None of these things because because of the value of money during the APRC it increases by a few percentage points. At the same time, with decreasing installments, it happens that a more expensive loan has a lower real annual interest rate. In any case, this must not be forgotten when comparing several offers.
Additional cost of offers
We must not forget about any additional costs. The final cost of a loan or bank loan can be different even with the same APRC. It depends, eg on the type of installments chosen. Theoretically, decreasing installments mean that you will have to pay less than with fixed installments , but this is also not the rule. Some costs are not included in the APRC at all, but those that are difficult to estimate. This is primarily the cost of withdrawals at an ATM or branch and the costs associated with maintaining a bank account or credit card attached to the loan. Additional costs that are not included in the APRC may therefore make us a bit dizzy. Therefore, especially with a bank loan involving many additional fees, we need to look closely at whether another offer with a higher APRC is more profitable.
Theoretically, you can do it yourself, because there is a special formula for the APRC. However, due to its complexity, this option is only good for enthusiasts of economics and financial mathematics. It is much simpler to ask the lender or lender about the amount of the Real Annual Interest Rate and do not forget about any additional costs. This information cannot be hidden from the client. Another issue is that the APRC is always written in a smaller font than the eye-catching nominal interest rate.