The APR (Annual Percentage Rate) is a concept that allows us to appreciate what the effective cost is expressed as a percentage that a person who takes out a loan transaction has to face[1].
This rate depends on:
- Applicable nominal interest rate.
- Number of times that interest is paid in the year.
- Commissions and other expenses that the borrower is obliged to pay to the financial institution as consideration for the credit received or the services inherent to it.
- Taxes.
The APR allows homogeneous comparisons of the cost of credit for the customer in different transactions.
However, it should not be forgotten that there are a series of expenses that the borrower has to face that are not included in the calculation of the APR:
- Expenses to be paid to third parties, in particular brokerages and notary fees.
- Non-mandatory insurance or guarantee expenses for the granting of the loan. However, the insurance premiums that are intended to guarantee the institution the reimbursement of the loan in the event of death, disability or unemployment of the person who received the loan will be included in the calculation of the APR, provided that the institution imposes such insurance as a condition for granting the loan.
- The APR will be replaced by the expression Variable APR[2] in transactions that allow changes in the interest rate and / or commissions or expenses included in the APR.
[1] In a first stage there was a tendency to include in the computation of the APR only those items that the borrower faced and were received by the lender, but more recently regulations have established the inclusion of every expense (with some exceptions) incurred by the borrower, whether or not it corresponds to the financial institution.
[2]Variable APR: expression of the APR for contracts that allow changes in the interest rate and / or commissions or expenses included in the calculation. It is calculated under the theoretical assumption that the reference rate remains constant, during the life of the transaction, at the last known level at the time the contract is signed; therefore, the APR will only be for information purposes.
