“Interest from just 1.5% a month!” sounds cheap. But the interest rate is not the price of the loan. The price is the APR, and it can be a very different number.
Interest rate vs APR in one line each
- Interest rate: what the lender charges for the money itself.
- APR (Annual Percentage Rate): the full yearly cost of the loan, including interest plus processing fees, other charges and GST built into the cost of credit.
RBI requires regulated lenders to show the APR in your Key Fact Statement (KFS). If you only look at one number before you accept a loan, make it this one.
Why short loans have shockingly high APRs
Fees hurt more when the loan is short. Here is an illustrative example:
| Loan A | Loan B | |
|---|---|---|
| Amount | ₹20,000 | ₹20,000 |
| Interest rate | 24% a year | 24% a year |
| Processing fee | ₹1,000 | ₹1,000 |
| Tenure | 12 months | 3 months |
| Approximate APR | about 34% | about 56% |
Illustration only, rounded; actual APR depends on the repayment schedule.
Same interest rate, same fee, roughly double the yearly cost. That is how a loan advertised at a modest rate becomes expensive.
In our October 2026 review of lending app listings, the maximum APRs that apps themselves disclosed ranged from under 20% to well over 100% a year.
How to read your KFS in 60 seconds
Look for these lines:
- Loan amount sanctioned vs amount disbursed (the gap is usually fees).
- APR: your true yearly cost.
- Total amount payable: everything you will pay back.
- Fees and charges: processing, late payment, bounce, foreclosure.
- Cooling-off period: how long you can exit by repaying principal and proportionate APR without penalty.
- Lender’s name and grievance officer: who to call if something goes wrong.
Quick sense check: divide the total amount payable by the amount actually disbursed. If you are paying back far more than you received for a short loan, the APR is high, whatever the “interest rate” says.
Paying high-APR app loans? See if one loan at a lower APR could replace them. You’ll see the KFS before you commit.
Questions to ask before you accept any loan
- What is the APR, and is it in my KFS?
- How much will actually reach my bank account?
- What is the total I will repay?
- Is there a penalty for repaying early?
- Who is the regulated lender, and is the app on RBI’s Digital Lending Apps list?
FAQs
Is a flat interest rate the same as APR?
No. A flat rate is charged on the original amount for the whole term, so the effective rate is higher. APR includes fees too. Try our flat vs reducing rate calculator.
Do lenders have to show the APR?
Yes. RBI requires regulated lenders to give borrowers a Key Fact Statement that includes the APR.
Is a high APR illegal?
RBI does not set a single interest cap for NBFC personal loans, but rates and fees must be disclosed transparently. Compare before you borrow.
FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders, including its related party Aparampaar Finance Pvt. Ltd. (Omozing). This article is for information only and is not financial advice.