APR (RRSO)
The Annual Percentage Rate - in Polish RRSO - is the only number you should compare between offers. The interest rate lies by omission: it says nothing about the arrangement fee, insurance or charges. APR tells you about everything, including when you pay.
Offer A
Offer B
Offer C
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| Offer | Nominal | APR | Instalment | Paid out | Total cost |
|---|
Why APR is the only honest number
The nominal interest rate only tells you about interest. It says nothing about the arrangement fee, nothing about insurance, nothing about a mandatory account at PLN 15 a month. So you can build a loan with a 0% interest rate that costs more than a loan at 20%.
APR closes that loophole. It is the total cost of the loan - interest plus all mandatory charges - expressed as a percentage per year. It also takes into account the moment money changes hands: a thousand zloty fee paid today hurts more than a thousand zloty spread over five years.
The formula
The definition is set by the Polish Consumer Credit Act (Annex No. 4). APR is the value of X at which the discounted value of payouts equals the discounted value of repayments:
Ck - loan payout no. k (what you receive in your account)
tk - the time of that payout, in years from drawdown
Dl - repayment no. l (instalment + all charges)
sl - the time of that repayment, in years
This equation cannot be solved with a formula - X sits in the exponent of dozens of terms at once. It has to be found numerically: the program guesses a value, checks whether both sides balance, and narrows the range. Our calculator uses the bisection method (200 iterations, accurate to 10-9).
The practical takeaway: APR is not "interest rate plus fee". It is a completely different quantity and you can't work it out on paper. That is why the bank has a statutory obligation to state it in every advert and in the information form.
APR is higher than the interest rate even without a fee
This surprises people most often. Take a loan of PLN 50,000 at 10% over 60 months, with no charges at all. Zero fee, zero insurance. The APR is 10.47% - not 10%.
The reason: you pay instalments every month, while APR is an annual rate with compounding. A bank charging 10% a year in practice charges 0.8333% a month - and twelve such months add up to more than 10%:
The mark-up grows with the rate: at 5% the APR is 0.12 pp higher, at 10% 0.47 pp, and at 20% already 1.94 pp. Remember the rule: APR with no charges at all is always slightly higher than the interest rate. If an offer's APR equals the interest rate to the penny, something is wrong with that advert.
The "0% loan" trap
The most popular sales trick in Poland. Household appliances, furniture, electronics - "0% instalments" everywhere. Interest really is zero. The fee - not necessarily.
| PLN 10,000 loan, 0% interest, 12 instalments | Paid out | Instalment | APR |
|---|
PLN 10,000 over 12 months, 0% interest, but a PLN 1,000 fee: you receive PLN 9,000 in your account and pay back PLN 10,000. Interest rate in the advert: zero. APR: 21.83% - like an expensive cash loan.
The mechanism is always the same: the fee is deducted from the payout, but interest (and instalments) are calculated on the full amount. You pay for money you never saw.
How to protect yourself: in every offer look for the "APR" (RRSO) line and the "total amount payable". If the seller says "zero percent" but can't tell you the APR - it isn't zero percent.
What is included in the APR, and what isn't
Included - everything that is mandatory:
- interest on the capital,
- the arrangement fee and processing fee,
- mandatory insurance (life, job loss, low down payment),
- account fees, if the account is a condition of the agreement,
- credit broker costs,
- loan servicing and administration fees.
Not included:
- optional costs - insurance you don't have to buy,
- fees for additional services (certificates, annexes, early repayment),
- costs incurred if you breach the agreement: penalty interest, reminder fees, debt collection,
- notary and court fees for a mortgage,
- currency conversion costs.
The Polish Consumer Credit Act of 12 May 2011 requires the APR to be stated in every advert containing information about the cost of credit and in the information form provided before the agreement is concluded. The calculation method is set out in Annex No. 4 to the Act - exactly the formula you see above.
The Act covers consumer loans up to PLN 255,550. For mortgages, the obligation to state the APR follows from the Mortgage Credit Act - the calculation rules are analogous.
Three mistakes when comparing offers
1. Comparing instalments. The lowest instalment almost always means the longest term. Double the length of the loan and the instalment falls - and the total cost rises by tens of percent. The instalment tells you about your monthly budget, not about the price of the loan.
2. Comparing interest rates. Look at the comparison tool above: the offer with the lowest interest rate (6.9%) has the worst APR of the set, because the PLN 5,000 fee eats up its entire advantage.
3. Comparing the APR of offers with different terms. APR is an annual rate, so formally the comparison is valid - but a 3-year loan with an APR of 12% will cost you less than an 8-year loan with an APR of 11%. For the comparison to be fair, set the same amount and the same term, and then look at the APR and the total cost together.
1. APR is the only number for comparing offers. The interest rate,
the instalment and "0% fee" are marketing.
2. APR is higher than the interest rate even with no charges - that is
the effect of monthly compounding.
3. The fee is deducted from the payout. You pay interest on
the full amount - including money you never received.
You can calculate APR now. Next, learn to read it.
The result alone isn't enough - you also need to know when you can compare two APRs and when that comparison lies. We show it with offers where a lower interest rate means a higher cost.