Annual interest rates in crypto and finance: how not to overpay

Many beginner investors and borrowers confuse the interest rate with its total cost. And the difference can be significant. We are talking about APR (Annual Percentage Rate) — a metric that reveals the real price of any loan or staking income over twelve months.

Why APR and not just the rate?

A regular interest rate only shows one thing: how many percent you pay for a loan. But that’s not the full picture. Banks and platforms add service fees, insurance, appraisal, document processing. This is where annual percentage rate comes in — it consolidates all expenses into one figure.

Real-life example: you are offered a loan at 10% with a 5,000 ruble fee. The actual cost will be higher — about 13–14% per year. That’s the true APR.

Where this indicator is found

Traditional finance

On credit cards, APR can vary depending on the type of transaction. For example, cash withdrawals often cost more than regular purchases. Banks also offer introductory rates — 0% for the first six months, then jumping to 20–22%.

As for mortgages and auto loans, hidden costs are especially tricky. Insurance, property appraisal, registration — all of these increase the actual price. Advertising talks about a low rate, but the real APR is much higher.

Cryptocurrency segment

In the world of digital assets, APR works differently, but the essence is the same — it shows the actual annual result.

Crypto loans: you lock in BTC or ETH as collateral and receive a stablecoin (USDT, USDC) at a certain interest rate. Usually, it’s 5–12% per year, but you need to consider fees for early repayment.

Staking: when you lock your tokens in the network, the platform promises you a reward. If the APR is 15% on Polkadot, it means that every 100 DOT will bring you 15 DOT over a year. But this is the maximum — it can be less due to validator fees.

DeFi farming: here, impressive figures like 100%+ per year are often advertised. But caution is needed. Such rates don’t account for token price fluctuations and network gas fees. Today, it’s 100%, but in a month, it could be 20% — a common occurrence.

APR and APY: what’s the difference for an investor

When you see both indicators on a DeFi platform, remember:

APR — is the basic yield without considering reinvestment of your earnings.

APY — is a more accurate indicator. It accounts for the fact that you will reinvest your earned funds, and they will also generate income (compound interest). That’s why APY is always higher than APR.

If you are serious about investing, compare specifically APY, not the attractive APR.

How this value is calculated

The formula looks roughly like this:

APR = ((All expenses for the year – Principal amount) / Principal amount) × (365 / number of days) × 100%

In practice, it’s easier to use special online calculators, especially when there are many and diverse fees.

Practical tips for choosing

Don’t fall for attractive numbers in advertising. Always ask for the full APR — including all possible expenses.

In the cryptocurrency segment, check the history. If a platform promises 50% on staking, make sure it’s not a joke and that they actually pay.

In DeFi, clarify whether the rate is fixed or changes. A variable rate might drop soon after you enter.

Compare offers fairly: one looks like 8% APR, another as 8.5% APY. The second is more advantageous due to reinvestment considerations.

Summary

APR in cryptocurrency and traditional finance is your main tool for honest evaluation. Don’t rely on the simple rate; calculate the total cost. This will help avoid unpleasant surprises and make truly profitable choices among different offers.