What is APR?
APR (Annual Percentage Rate) refers to the interest rate on a loan that is calculated on an annual basis. A borrower will effectively pay interest on a loan that is equivalent to the APR i.e for a loan of Rs. 1000 taken over a year the interest to be paid is Rs. 85 in the case of flat interest. However as the borrower makes each repayment, the loan amount is reducing, which means that the interest amount should reduce too. This reduction is not included in a flat interest rate. Hence the flat rate is recalculated to give an APR. Rang De's borrowers pay an interest of 16% APR (8.5% flat p.a.(16% APR) ) which is 11% less than the APRs of other MFIs world-over.
What is APY?
APY (Annual Percentage Yield) refers to the annual rate of interest received by the social investor taking into account the effect of compounding. For example if a social investor has made an investment of Rs. 1000, they will get an interest of Rs. 20 after their repayments. However after each payment they will get the divided interest on Rs. 1000 loan and not the remaining loan amount. Hence the flat rate is recalculated to give an APY. Rang De gives its social investor an APY of 3.5% (2% flat).
What is a flat interest rate?
A flat interest rate refers to the interest rate a borrower has to pay on a loan if they pay it at the end of the repayment period. Rang De charges its borrowers a flat interest rate of 8.5% flat p.a.(16% APR) i.e. for a loan of Rs. 1000 taken over a year, the amount the borrower has to pay is Rs. 1085 (Rs. 1000 for the loan and Rs. 85 as interest) divided equally over each repayment period (monthly, weekly, quarterly).
What is APR?