A Practical Example of APR and Loan Fees

Araba Atadwe Inc. is taking a loan of GHS 100,000 from Adinkra Bank to purchase new equipment. The loan details are as follows:

• Loan Amount: GHS 100,000

• Nominal Interest Rate: 30% per annum

• Origination Fee: GHS 4,000

Step-by-Step Calculation:

1. Calculate the Loan Fee as a Percentage of the Loan Amount:

• Loan fee percentage = (Origination Fee / Loan Amount) * 100

• Loan fee percentage = (4,000 / 100,000) * 100

• Loan fee percentage = 4%

2. Calculate the APR (Annual Percentage Rate):

• APR = Nominal Interest Rate + Loan fee percentage

• APR = 30% + 4%

• APR = 34%

Interpretation:

This means that Araba Atadwe taking a loan of GHS 100,000 with a nominal interest rate of 30% and an origination fee of GHS 4,000 would incur an Annual Percentage Rate (APR) of 34%. The APR of 34% means that for every GHS 100,000 Araba Atadwe borrows, the total cost of borrowing for one year is 34%, including the nominal interest rate and the origination fee.