Reading a loan offer: rates, fees and APR
Learn how interest periods, fees, APR, total repayment and loan conditions appear in an offer. Amounts and rates in this lesson are examples only.
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Look beyond the headline rate
A loan offer is like a market price: the number shouted loudest isn't always what you pay. Let's read one together. First, the interest rate. Is it per month or per year? This matters a lot.
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Read instead: full lesson text
Look beyond the headline rate
A loan offer is like a market price: the number shouted loudest isn't always what you pay. Let's read one together. First, the interest rate. Is it per month or per year? This matters a lot.
Example only — monthly and yearly rates
Five percent a month sounds small, but over a year it's roughly sixty percent. Always turn a monthly rate into a yearly one before you compare.
Fees on the offer
Second, the fees. Processing fees, management fees, insurance, sometimes a charge just to apply. Fees can add a lot to what you really pay.
Interest plus fees: APR
Third, the APR. APR means annual percentage rate. It bundles the interest and the main fees into one yearly number, so you can compare loans fairly.
Compare APRs and total repayment
If two loans have the same interest rate but different fees, the APR shows which one really costs more. In Ghana, banks publish APRs for this reason. Fourth, the total repayment. Ask: if I borrow this amount, how much will I pay back in total, and over how long?
Example only — total repayment
Here's an example. Borrow one hundred thousand naira, and the offer says pay back one hundred and thirty thousand over six months. The cost of that loan is thirty thousand naira. Just an example, but that's the number to compare.
Conditions and penalties
Fifth, the conditions. Do you need collateral or a guarantor? What happens if you pay late? Is there a penalty for paying early?
Published lending-rate ranges
On Afiwe you'll see banks' lending rates as a range: the prime rate is what their best customers pay, the maximum is the highest they charge. Most people pay somewhere in between. Your actual offer depends on you, so ask the lender for the full cost in writing before you sign.
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General education, not financial advice. Amounts shown in illustrations are examples only.