annual percentage rate
The annual percentage rate is the true yearly cost of a loan including fees, which is the only number worth comparing between lenders.
In plain English
Lenders are very good at showing you a small number. The annual percentage rate is how you find the real one.
An advertised interest rate can leave out a great deal. Arrangement fees. Insurance you were required to buy. Processing charges. Management fees. Each is small on its own and together they can transform the cost of the loan.
The APR is designed to gather all of it into one annual figure, so that two loans can be compared honestly. A loan advertised at 15 percent with heavy fees can carry an APR far above one advertised at 20 percent with none.
The other trick to watch for is monthly rates. A lender quoting 4 percent a month sounds far gentler than one quoting 48 percent a year, and they are the same lender charging the same money. Digital lenders in Nigeria use this constantly, and it works, because people compare the numbers they are shown rather than the numbers that exist.
So ask one question, always, and refuse to move until it is answered. What is the APR, including every fee?
A lender who will not tell you plainly has told you something anyway.
One loan advertises 18 percent with a ₦50,000 arrangement fee and compulsory insurance. Another advertises 22 percent with nothing added. Once everything is counted, the second loan is cheaper, and only the APR reveals it.
Questions people ask
What is the difference between interest rate and APR?
The interest rate is the cost of the money alone. The APR includes the fees as well, which is why it is usually higher and always more honest.
Why do lenders quote monthly rates?
Because 4 percent a month sounds far smaller than 48 percent a year. Always convert to an annual figure before comparing anything.
Does APR include everything?
It should include compulsory fees, but always ask specifically what has been excluded. Some charges are presented as optional and are anything but.
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