APR

Article 3(i) of the Consumer Credit Directive (2008/48/EC) defines the annual percentage rate of charge as "the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, where applicable including the costs referred to in Article 19(2)". Article 3(g) defines the total cost of the credit as "all the costs, including interest, commissions, taxes and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor, except for notarial costs". Costs of ancillary services such as insurance premiums are included when the service contract is compulsory to obtain the credit or to obtain it on the terms marketed. For the APR calculation itself, Article 19(2) leaves out charges for breaching the agreement.

The equation in Annex I is the same across the whole EU. It sets the present value of all drawdowns equal to the present value of all repayments and charges:

sum over k = 1..m of C_k x (1 + X)^(-t_k) = sum over l = 1..m' of D_l x (1 + X)^(-s_l)

X is the APR. C_k is drawdown number k and t_k is the time from the first drawdown to that drawdown, in years. D_l is repayment or charge number l and s_l is the time from the first drawdown to that payment, in years. The calculation assumes that the agreement runs for the agreed period and that both sides pay on the agreed dates. A year has 365 days (366 in a leap year), 52 weeks or 12 equal months, and an equal month has 30.41666 days. The result is given to at least one decimal place, rounded half up.

The Polish Consumer Credit Act takes over the definition in Article 5 point 12, where APR is called RRSO (rzeczywista roczna stopa oprocentowania), and the formula and assumptions in Annex 4.

In general the equation has no closed-form solution for X, so the system finds it numerically, for example with Newton's method or bisection. That makes APR an output of the full cash-flow schedule, and every input that changes a date or an amount changes the result.

Annualization produces large numbers for short loans. A loan of PLN 1,000 repaid with PLN 1,100 after 30 days has an APR of about 218.9%, because the cost is compounded over a year. A loan of PLN 3,000 repaid in 12 monthly installments of PLN 300 has an APR of about 41.3%. Product and legal teams should expect those figures on screen, and the app has to display them as calculated.

Every channel has to show the same figure. The Polish Act requires APR in advertising that mentions cost (Article 7) and in the agreement, together with the total amount payable and all assumptions used (Article 30(1)(7)). A breach of Article 30(1)(7) lets the consumer repay the credit without interest and other costs (Article 45). If the calculator, the pre-contract form and the agreement compute APR separately, a rounding difference or a missing fee becomes a legal risk. One pricing engine should produce the schedule and the APR, and every channel should display its output.

Promotions and repeat loans change the inputs. A discount on the commission or a different offer for a returning customer changes the cash flows, so the APR has to be recalculated for that offer and stored with it.

Article 19 and Annex I of Directive 2008/48/EC set the method today. The new Consumer Credit Directive, Directive (EU) 2023/2225, keeps the same principle in Article 30 and moves the formula to Annex III; its dates and its rules on cost caps are described under CCD2. In Poland the Consumer Credit Act caps non-interest costs (Article 36a), while APR is calculated with the Annex 4 formula and disclosed to the consumer.

In the app we have built for AvaFin Poland since January 2026, the calculator shows the amount, period, cost, APR, repayment date and promo codes to guests and logged-in customers. Prices come from the same pricing engine as AvaFin's central system, so the amount in the app is the amount in the agreement. We did not build that engine or the APR calculation. Our work covered how the results are presented and checked in the app.

The loan proposal screen shows the previous APR crossed out next to the new one when an offer changes the price, in the same way as interest and commission. The lesson from building it: the crossed-out APR has to come from the pricing engine together with the offer. If the app works it out on its own, it can show a figure the engine never produced.