Interest Itself Is Costly Interest represents the price of credit. It is the “rent” you pay while you use someone else’s money. When stated in Rupees, interest makes up part of the finance charge, which is the total Rupee amount paid to use credit (including interest and any other required charges such as a loan application fee)
Banking law requires loan providing companies to state every detail in the loan statement, for example the finance charge both in Rupees and as an annual percentage rate (APR). The APR expresses the cost of credit on a yearly basis as a percentage rate. For example, a single-payment, one-year loan for Rs 100,000 with a finance charge of Rs 14,000 has a 14 percent APR.
Knowing the APR simplifies making comparisons among credit arrangements. The lower the APR, the lower the true cost of the credit. The APR can be used to compare credit contracts with different time periods, finance charges, repayment schedules, and amounts borrowed.
Interest: In this context, interest is the “rent” you pay for using credit.
Finance charge: Total rupee amount paid to use credit.
Annual percentage rate (APR): Expresses the cost of credit on a yearly basis as a percentage rate.