The Real Annual Rate Guide covers the following things, what is the actual annual rate, what it is made of, and what are the different ways to represent the actual annual rate.
The real APR serves the consumer
The cost of the loan is usually expressed in terms of the interest rate of the loan and the annual percentage rate of charge. However, many borrowers are unaware of the difference between these terms. What does the APR measure, and how does it differ from the APR?
It can be expressed, for example, as follows:In our loan comparison, the real APR always includes all the costs associated with the loan:
What is the APR?
The effective annual interest rate differs from the nominal interest rate of the loan in that it includes all the costs and fees of the loan. In other words, all the costs included in the loan have been converted to interest. The annual percentage rate is included
- loan processing costs
- the advertising costs to be paid for the loan
- opening and service fees
It is conceivable that the APR would indicate the interest rate of the loan, if there were no other charges. For example, getting a quick note via SMS can cost up to € 5, and that cost is not necessarily stated in the loan terms, so it is not reflected in the nominal interest rate of the loan.
For smaller loan amounts, such as instant loans, a service charge of a few euros may initially seem like a negligible expense – however, as these costs multiply, the loan may eventually have to pay much more than planned.
The annual interest rate is not always reported in the same way, despite regulation
Consumer Protection Act require all companies that grant consumer credit and other loans to declare the annual percentage rate of charge in the same way.
The purpose of the rule is to help the consumer compare the loans impartially and to disclose the so-called ‘misconduct’. the hidden costs. Despite the regulations, some lenders still do not report the actual annual interest rate as required by law.
For example, the loan guarantee element may not be included in the costs. The stated rate applies only if the borrower also has a personal guarantor. In the absence of a guarantor, it may in some cases be purchased from a lender or partner.
Thus, the annual percentage rate of charge is the total cost of the loan if the total cost is converted into an annual interest rate. However, this method of calculation is not a relevant indicator if the loan is paid off in accordance with the original agreement.
The cost of a short term loan is best reflected in the total cost of the loan, which is the amount the customer has to repay