Why APR is higher than the stated rate
For a ₹10,00,000 loan at a stated 10% rate over 5 years with a ₹15,000 processing fee: the EMI, ₹21,247.04, is calculated on the full ₹10,00,000. But the borrower only actually receives ₹9,85,000 upfront (₹10,00,000 minus the fee) — so the true cost of borrowing, expressed as APR, comes out to 10.65%, higher than the stated 10%.
A bigger fee, a bigger gap
The same loan with a larger ₹50,000 fee instead — same EMI, same nominal rate — has an APR of 12.24%, a much wider gap from the 10% stated rate. The size of the fee directly drives how much APR diverges from the nominal rate.
The zero-fee case confirms the logic
With no fee at all, APR comes out to exactly 10% — identical to the nominal rate. APR only diverges from the stated rate when fees create a gap between what's borrowed on paper and what's actually received.
Why APR is the fairer number for comparing loans
Two lenders quoting the same 10% nominal rate can have very different APRs if their fee structures differ — comparing loans by nominal rate alone can hide a real cost difference that APR makes visible.