The true APR of an instant loan (real math)

Loan apps advertise "1% per day" or "₹5 per ₹1,000 per day". Sounds small. The real APR is usually 200–500%. Here's how to calculate it before you accept.

The headline rate is not the APR

APR (Annual Percentage Rate) is the all-in cost of borrowing for one year, including interest, processing fees, GST, and any "convenience" charges. Loan apps quote daily or flat rates because they look smaller.

The 3-step calculation

Step 1 — Total cost. Add up: interest + processing fee + GST + any other deduction. Example: ₹5,000 loan, 14 days, ₹600 processing fee, ₹150 GST, ₹350 interest = ₹1,100 total cost.

Step 2 — Net disbursed. ₹5,000 − ₹600 − ₹150 = ₹4,250 actually credited.

Step 3 — Annualise. APR = (total cost / net disbursed) × (365 / tenure days) × 100 = (1,100 / 4,250) × (365 / 14) × 100 = 674% APR

The Play Store ad said "1% per day". The real cost is 674% annualised.

Why this matters

RBI's Digital Lending Guidelines (2022) require every lender to disclose the APR in the Key Fact Statement before you accept. If the app shows a "flat rate" or "EMI per ₹1,000" instead of an APR, that itself is a violation — and a strong signal the lender is unregulated.

Common APR-hiding tricks

• Processing fee deducted up front — you pay interest on money you never received
• "Convenience" or "verification" fees — sometimes 10–15% of the loan
• GST shown separately — it's still part of your cost
• Daily compounding — turns 1%/day into far more than 365%/year

What a fair APR looks like

RBI-regulated personal loans typically range 12–36% APR. Credit card revolving is 30–45%. Anything above 60% APR is predatory by global standards.

Related reading

• See the full breakdown in True APR on loan apps: ₹5,000 becomes ₹7,800
• Learn how to spot fees buried in the disclosure by reading the KFS in 3 minutes
• Check the hidden charges in instant loan apps before you accept
• If the lender is not RBI-regulated, use the 30-second legality checklist first

FAQ — True APR

Q: Is the 36% APR a hard RBI cap? Not for unsecured personal loans — RBI removed the rate cap years ago. 36% is the practical reference because most regulated banks and NBFCs price below it. Anything above 60% APR is predatory by global standards, and 100%+ usually signals an unregulated lender.

Q: Why do apps quote "flat rate" instead of APR? Flat rate on a 14-day loan looks like 2% but the annualised APR is over 50%. Quoting the smaller number is a sales tactic; the DLG mandates APR disclosure specifically to neutralise it. If you see a "flat rate" without an APR on the KFS, it is a violation.

Q: Should I include GST in APR? Yes. RBI's 2023 clarification requires APR to include GST and every mandatory charge. If the lender shows GST separately, add it back yourself before comparing offers.

Q: What APR is fair for a ₹10,000 / 30-day loan? With honest pricing — 2–3% processing fee, no hidden charges — a 30-day micro-loan still works out to ~36–45% APR because short tenure amplifies fees. Anything beyond 60% is predatory, even at short tenure.

Q: Can I use the cooling-off period to test a lender's true APR? Yes. Take the loan, immediately request return under the cooling-off window, and observe what the lender charges. If they demand more than the proportionate APR + minor fee, the lender is non-compliant — document and file Sachet.