Loan true cost & APR checker: methodology

What the checker answers

"I have a loan offer. What will it really cost me, and how does it compare with another offer?"

Inputs

• Loan amount sanctioned (P)
• Interest rate, % per year, on reducing balance
• Tenure in months (n)
• Processing fee, as a rupee amount or a % of P, with optional GST (default 18%)
• Other one-time charges you name yourself (insurance, documentation, stamp duty…), entered as the amount you pay
• Whether fees are deducted from the loan amount
• Optionally, the APR printed on your Key Facts Statement (KFS), for comparison only

Formulas

Monthly rate: r = annual rate ÷ 12 ÷ 100

EMI (when r > 0):

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

When r = 0, EMI = P ÷ n.

Fees and charges: F = processing fee + GST on processing fee + other charges

Net amount for APR: N = P − F

APR: we find the monthly rate i that makes the EMIs worth exactly N today:

N = Σ (t = 1 to n) EMI ÷ (1 + i)^t
APR = 12 × i

We solve for i numerically (Newton–Raphson, with bisection as a fallback). This is the internal-rate-of-return approach on the net disbursed amount that RBI's KFS circular illustrates in Annex B.

Total interest = n × EMI − P. Total cost of borrowing = total interest + F.

Check against RBI's own example

RBI's Annex B uses a loan of ₹20,000 at 15% fixed for 24 monthly instalments, with ₹400 of fees (₹240 payable to the lender and ₹160 to third parties), so the net disbursed amount is ₹19,600. RBI shows total interest of ₹3,274 and an APR of 17.07%. Our calculator reproduces these numbers, and this example runs as an automated test on every change.

Comparing offers

You can enter up to three offers. We label the one with the lowest total cost (interest plus fees) as "Lowest total cost among the offers you entered". We don't call any offer "best": the right choice also depends on things this tool can't see, such as prepayment terms, service and the lender's charges later in the loan. If the offers have different amounts or tenures, we say so, because total cost is then not a like-for-like comparison.

When our APR differs from your KFS

If the APR you enter from your KFS differs from ours by more than 0.5 percentage points, we show a neutral note. Differences can come from:

• charges not entered here
• a first EMI date that isn't exactly one month after disbursal (broken-period interest)
• rounded EMIs
• a different day-count convention

We never suggest a lender is wrong. The KFS is the authoritative document for your loan.

Limitations

• Assumes a fixed rate for the whole tenure. For floating-rate loans, APR is an estimate at today's rate.
• Assumes all fees are paid at disbursal, whether deducted from the loan or paid separately.
• Excludes contingent charges: penal charges, bounce charges and foreclosure charges.
• "Other charges" are taken exactly as entered; we don't add GST to them.