The annual percentage rate: why it is higher than the nominal one
Two loans at the same 18% can cost different amounts. The difference shows up not in the nominal rate but in the annual percentage rate.
The nominal rate reflects only what is charged on the outstanding balance. But a loan rarely consists of interest alone: there may be a one-off origination fee, a monthly service fee, sometimes insurance. None of that is part of the nominal rate.
The annual percentage rate counts everything together. It answers one question: what the loan will cost if every mandatory payment is made on time and in full. That is why the APR is always stated in the loan terms — the law requires it.
Why there are two figures
The nominal rate is what the monthly calculation runs on: it determines how much of each payment goes to interest. The APR is for comparison: when two offers sit side by side, that is the number to read.
What pushes the APR up
- The origination fee: paid up front, but spread across the whole term
- The monthly service fee: even a small percentage adds up over a long term
- A short term: the same one-off fee weighs more over 12 months than over 60
Early repayment works the other way: the sooner the debt is closed, the less interest accrues on the balance. Neo Credit applies no penalty for early repayment.
The calculator on this site shows both figures: the monthly payment and the annual percentage rate. The calculation is indicative: final terms are set after a solvency assessment.