APR (annual percentage rate) is the total cost of borrowing over a year, expressed as a percentage. It includes the interest rate, processing fees, stamp duty, and GST and other applicable charges. In short, APR is interest plus all additional loan costs.
Why it matters
APR gives you the true cost of a loan. Two loans can carry the same interest rate, but the one with higher fees will have a higher APR and cost more. At Zerodha Capital the APR includes all applicable charges, with no hidden costs.
Example
Borrowing Rs. 1,00,000 at 11% interest per year:
- Interest: Rs. 11,000
- Processing fee (0.25%): Rs. 250
- GST on fee (18%): Rs. 45
- Stamp duty: Rs. 500
- Total charges: Rs. 795
You receive Rs. 99,205 in hand (Rs. 1,00,000 minus Rs. 795). At the end of the year the total cost is Rs. 11,000 + Rs. 795 = Rs. 11,795.
APR = (Rs. 11,795 / Rs. 1,00,000) x 100 = 11.795%, so the effective APR is about 11.8%.
APR does not include pledge or unpledge charges, since those are charged separately by your depository participant.