# APR: the real annual cost of a loan > APR vs interest rate: why "0%" can cost as much as a credit card, and how to compare loans by everything you pay, not by the advertised rate or the monthly payment. - Course: [Personal Finance: Budget, Safety Cushion, Debt and Investing](https://productovi.com/courses/personal-finance.md) - Module: What does this debt really cost? - Lesson 9/32, ~18 min - Source: https://productovi.com/courses/personal-finance/real-cost-of-a-loan ## Zero percent, they said: APR vs interest rate **Alex Tutor:** Sam's family again, and you're still helping them. This time the problem is debt. **Sam:** The credit card owes 52,800 now and charges 3.2% a month. Two ads offer to pay it off. One says 0% interest for 24 months. That sounds like the end of the problem. **Alex Tutor:** Read the small print with me. Offer A: 0% interest, plus a service fee of 1.9% of the loan every month. Offer B: 32% a year, equal monthly payments, no fees. **Alex Tutor:** The rate is not the price. The price of a loan is everything you pay back minus what you received: interest, fees, insurance, all of it. **Alex Tutor:** Abroad, offers split it the same way. The **interest rate** is the advertised number; the **APR**, annual percentage rate (in the EU, APRC), adds the fees and shows the price per year. Ukraine's counterpart of the APR is the real annual interest rate, coming up shortly. **Sofia:** For A: 52,800 / 24 = 2,200 of principal, plus 1.9% of 52,800 = 1,003.20 of fee. 3,203.20 a month. > **Exercise:** Offer A: 52,800 UAH for 24 months at "0% interest" plus a monthly fee of 1.9% of 52,800. The monthly payment is 3,203.20. What is the **total cost** of the loan, everything paid minus the 52,800 received? ## A fee on money you already repaid **Sam:** 24,076.80 for a "zero percent" loan? That's almost half of the debt. **Alex Tutor:** And look at how the fee works. It is charged on the original 52,800 every month, even in month 23, when you owe only 4,400. You keep paying for money you have already returned. **Sofia:** So 1.9% a month is not 22.8% a year. **Alex Tutor:** Not even close. That is why Ukrainian law requires lenders to show the **real annual interest rate**: the total cost with every fee included, as a share per year. As of 2026, it must appear in ads and in the information you get before signing. $$ P = \sum_{t=1}^{n} \frac{A_t}{(1+r)^t} \qquad R = (1+r)^{12} - 1 $$ *P is the money you receive, A_t the payment in month t, r the monthly rate that makes the two sides equal, R the annual rate. Lenders follow a method set by the regulator; this is the idea behind it.* **Alex Tutor:** Solve it for offer A and r is about 3.25% a month: a real annual cost of about 46.8%. Offer B comes out at about 37.1%. You don't solve this by hand; you read it from the offer and check it. > **Exercise:** Sam has three options for his 52,800 UAH card debt: offer A ("0%" plus a monthly fee of 1.9% of 52,800, 24 months), offer B (32% a year, no fees, 24 months) or keeping the card at 3.2% a month. Which comparison of the three is right? ## From a monthly rate to a yearly one **Sam:** And my card? 3.2% a month, so 38.4% a year? **Alex Tutor:** 38.4% is the simple sum of twelve months. But interest left unpaid is charged interest the next month. Compounded, 3.2% a month is (1.032)¹² − 1 a year. **Sofia:** So offer A, the "zero percent" one, costs about as much as the card itself. **Alex Tutor:** Slightly more, in fact. Swapping one for the other would only change who you pay. **Alex Tutor:** One catch in English-language offers: a US APR is usually the simple version, the monthly rate × 12, so it can look lower than the compounded figure. The EU's APRC compounds, like the real annual rate in this lesson. > **Exercise:** The card charges 3.2% a month on the balance. What is that as an **effective annual rate**, with monthly compounding? Round to two decimals. ## The monthly payment is not the price **Sam:** Offer B is 3,006.83 a month. A third bank offers the same 32% over 36 months: under 2,300 a month. That one feels lighter. **Alex Tutor:** Lighter each month, heavier in total. A longer loan at the same rate means more months of interest. Compare the total cost and the real annual rate; use the payment only to check it fits the plan. **Sofia:** And fees taken at the start? **Alex Tutor:** Those are the sneakiest. A 3% issue fee on 52,800 means you receive 51,216 but repay 52,800 plus interest. The real annual rate counts it; the advertised rate doesn't. > **Exercise:** **True or false:** of two loans for the same amount, the one with the lower monthly payment is the cheaper one. **Sam:** And insurance? The bank called it "recommended" and added it to the payment. **Alex Tutor:** If you can't get the loan without it, it is part of the price. If you can truly say no, it is a separate decision, and the loan should be compared without it. **Sofia:** So the cost is everything paid on top of the money received. **Alex Tutor:** Yes. Returning the 52,800 itself is not a cost: that money was never yours to keep. > **Exercise:** What belongs in the **cost** of a loan when comparing offers? Select all that apply. ## Your turn: what the numbers say **Sam:** So, A, B, or keep the card? Give me the numbers and a reason I can repeat to my wife. **Alex Tutor:** Compare all three on the same terms: total cost or real annual rate. Then add the condition without which no refinancing helps. **Sofia:** That the card stops growing once it is paid off. **Alex Tutor:** Exactly. And a rule for every lesson about loans: check the current terms and your own situation; this is education, not personal advice. > **Exercise:** Compare Sam's three options in 3–4 sentences and say what the numbers show: offer A ("0%" plus 1.9% of 52,800 a month, 24 months, total cost 24,076.80, about 46.8% real annual cost); offer B (32% a year, no fees, 24 months, total cost 19,363.92, about 37.1%); or keeping the card (3.2% a month, 45.93% a year). Name the condition without which refinancing doesn't help. > **Key ideas** > > - The price of a loan is everything you pay minus what you receive. Offer A, "0%" plus 1.9% a month of the original amount: 24 × 3,203.20 − 52,800 = **24,076.80 UAH**. > - A fee on the original amount keeps charging for money already repaid, so 1.9% a month is far more than 22.8% a year: about **46.8%** real annual cost. > - Compare loans by the **real annual interest rate** (all fees included; APR or APRC in English-language offers), which Ukrainian lenders must disclose as of 2026: A 46.8%, B 37.1%, the card 45.9%. > - A monthly rate compounds: (1 + r)¹² − 1. 3.2% a month is 38.4% simple but **45.93%** a year compounded. > - A lower payment over a longer term usually costs more in total; fees taken at the start raise the real cost. > - Check the current terms and your own situation: this is education, not personal advice. **Alex Tutor:** Next: the card itself. When it's free, and why the minimum payment can keep a debt alive forever. - Previous lesson: [Case: Dana builds an emergency fund for summer and war](https://productovi.com/courses/personal-finance/cushion-plan-case.md) - Next lesson: [Credit cards: grace period and the minimum-payment trap](https://productovi.com/courses/personal-finance/credit-cards.md) --- Productovi Learning. Free, no sign-up needed to read.