All You Need to Know About Annual percentage rate (APR)

Top tips for borrowing money? Don’t only look at the interest rate! If you want to compare the true costs of borrowing, you should always refer to the Annual percentage rate (APR) instead of the interest rate. Not sure what APR is? Read on to find out more about APR.

Masthead Image

What is APR ?

Annual percentage rate (APR) is expressed as a percentage of the loan amount and it reflects the cost of borrowing over one year. It does not only take into consideration the interest rate but also all the extra charges that come along with the loan like late charges, administrative fees, etc. Therefore, you can easily compare which lender offers a better rate.

How to calculate APR?

A simplified APR formula is as follows:  Interst Rate x 12 monthsx1.9 (fixed number)


In general, the lower the APR, the lower the borrowing costs are. For example, a personal loan with a 17.5% APR is cheaper than the one with a 20% APR.

Is Monthly Flat Rate or APR More Objective When It Comes to Taking Out a Loan?

ItemMonthly Flat Rate APR
Definition Calculate the total interest expense for an unsecured loanCalculate all costs for an unsecured loan, including interest rate and extra charges
Borrowing Cost No,Cannot reflect all the costs of borrowing Yes Reflects the cost of borrowing over one year

Example: If you are going to take out a HK$60,000 loan with interest rate of 0.5% and a loan set up fee of 2% for 24 months, you will need to pay:


Situation 1: Considering Monthly Interest


Monthly Interest=HK$60,000 x 0.5% = HK$300 


Total Interest for the entire tenor:24 x HK$300 = HK$7,200



Situation 2: Considering APR 


The APR is 13.99% in this case, according to the method specified in the guidelines set out in the Code of Banking Practice.


Monthly Interest=HK$60,000 x 0.5% = HK$300 


Total Interest for the entire tenor: 24 x HK$300 = HK$7,200 


Loan Set Up Fee:HK$60,000 x 2% = HK$1,200 


Therefore, you can only get HK$58,800 (less the loan set up fee) instead of HK$60,000. 


In the 24-month payment term, you will repay HK$2,800 monthly (See formula: HK$60,000 + HK$7,200/ 24= HK$2,800). 



If you only consider monthly interest, you will not have taken the loan set up fee into account when comparing the costs of borrowing. 



Are loans with 0% APR the Best Loans?

In general, the lower the APR, the lower the borrowing cost. However, it is important to read the terms and conditions that come with the offer. A really low APR usually only lasts for a limited period of time or it only applies to selected customers.

Disadvantages of Comparing APR

Sometimes, APR cannot accurately reflect the total cost of borrowing because the calculations are based on long-term repayment tenor. The charges are spread too thin with APR calculations for loans with short tenor.

Low APR Loans in Hong Kong

MoneySmart Exclusive
Guaranteed application reward HK$600
MoneySmart Exclusive
Guaranteed application reward HK$600

Citi Tax Season Loan

APR*
1.78%
Total Amount Payable
HK$305,760
Total Interest Payable
HK$5,760
Monthly Payment
HK$12,740

【Citi Tax Season Loan rewards you with rewards as high as $15,880!】
New customer who successfully apply for Citi Tax Season Loan/Citi Card Debt Consolidation Loan on or before 2 January 2024 and successfully draw down on or before 15 January 2024 would be eligible for MoneySmart exclusive gift  up to HK$7,500 Apple Store Gift Card/ PARKnSHOP supermarket vouchers!
Popular physical gift options include Dyson Purifier Big+Quiet Formaldehyde BP03 (retail value HK$7,880) / Dyson V12 Detect™ Slim Fluffy vacuum (retail value: HK$5,180) / GoPro MAX Action Camcorder (retail value: HK$4,100) / Apple Watch Series 9 (GPS) - 45mm (retail value: HK$3,399) / Bose Soundlink Revolve+ II Bluetooth Speaker (retail value: HK$2,699)



💎From Good to Great: Earn HK$600 with Your Tax Loan Application】 From now until 31 December, apply for Citi Tax Season Loan via MoneySmart, you can earn an extra 6,000 SmartPoints regardless of approval! But that's not all - SmartPoints can be freely exchanged for cash vouchers from 20+ brands or converted into HK$400 cash! Click here to learn more.

Valid until 02 Jan 2024
Citi Tax Season Loan's APR is as low as 1.38%!
Bank Promo
APR* (Inclusive of $3,000 cash rebate)
1.28%
Total Amount Payable
HK$305,760
Total Interest Payable
HK$5,760
Monthly Payment
HK$12,740
Bank Promo:
From now on till 31 December 2023, successfully draw down WeLab Bank Personal Instalment Loan using MoneySmart unique code "NLSMRT" could enjoy up to HK$3,000 cash rebate offered by WeLab Bank!

Our team of seasoned experts are here to provide you personal and professional advice, so you can pick the best loan plan with the ultimate ease of mind.
Valid until 31 Dec 2023
MoneySmart Exclusive
MoneySmart Exclusive

PrimeCredit Fixed Loan

APR*
1.18%
Total Amount Payable
HK$303,600
Total Interest Payable
HK$3,600
Monthly Payment
HK$12,650
【 MoneySmart Exclusive Offer】Up to HK$12,000 Cash Bonus will be rewarded for successful application via MoneySmart! 
Valid until 31 Dec 2023
MoneySmart Exclusive
MoneySmart Exclusive

WeLend Personal Loan

The lowest APR
1.88%
Total Amount Payable
HK$308,640
Total Interest Payable
HK$8,640
Monthly Payment
HK$12,860
 Selected customers can receive up to HK$16,000 Cash Rebate upon successful draw down!
Valid until 31 Dec 2023

FAQ

What is an APR?

Annual percentage rate (APR) reflects the cost of borrowing over a year, taking into account the interest rate and the additional charges that come along with the loan like late charges, administrative fees, etc.

What is the average APR of loans in Hong Kong?

For bank loans, the APR is usually between 1.3%-3% and for loans provided by Money Lenders , the APR is usually 4-7%.