When someone needs a financing solution, be it a personal loan, a credit card or even a home loan, there are some aspects that should be taken into account when comparing the best alternatives for the case in question.

Among the most relevant characteristics for the comparison of different financial products, the interest rates practiced by financial institutions stand out immediately, among which are the Nominal Annual Rate (TAN) and the Global Effective Annual Rate (TAEG).

Why are TAN and APR important?

TAN and APR are excellent indicators for comparing proposals from different financial institutions. But beware: it is important that the comparison criteria (amount requested, payment terms, etc.) are the same.

Understanding the difference between all the rates that make up a loan, as well as which one truly reflects the cost of credit, is the most important challenge for anyone looking to apply for a loan.

Now, the interest rate is nothing more, nothing less than the cost of money, that is, the value that the bank will have as a profit when it lends you money, varying depending on the term, the amount requested and the type financial solution in question (whether it is a personal loan or a credit card or a mortgage loan).

For example: for a bank, it is different to make money available to buy a car, a house or take a trip, as the car or house can serve as collateral in case you default on the loan.

In short, the interest rate appears to be a very useful tool for comparing borrowing costs in different financial institutions. However, first it is worth knowing the difference between TAN and APR.

Differences between TAN and APR: after all, what distinguishes them?

Whether on a personal or home loan, as on a credit card, the so-called TAN and APR apply.

note: Until the end of 2017, the interest rate that applied to home loans was the TAER (Revised Effective Annual Fee). As of 2018, this disappeared, giving rise to the APR, so, when comparing mortgage loan proposals, pay attention to the value of the APR of the different solutions that each bank presents to you.

What is TAN?

The TAN (Nominal Annual Rate), as the name implies, is an annual rate used in operations that involve the payment of interest, thus expressing the interest on the loan.

As an indicator is processed annually, to calculate its monthly value it is necessary to divide it into 12 installments. If the calculation is semiannual, this value should be divided by two, or four if it is a quarterly value.

However, it should be noted that the TAN does not include taxes or other credit charges, so it should not serve as a comparison term between loans.

What is the TAEG?

In turn, the APR (Annual Global Effective Charges Rate) represents the total cost of the loan for the customer and is expressed as a percentage of the amount that is lent by the bank. The calculation of the APR includes: all loan fees; insurance required; fees; tax and/or record-related expenses (if applicable); and other charges that are associated.

Therefore, from the above definition of the APR, it does not include costs with: early repayment commissions; notarial costs; amounts to be paid due to default by the customer.

Basically, the great distinction between the TAN and the APR lies in the charges (which the latter includes and the former not) that the client has to pay to obtain the loan, which exist in addition to interest. Naturally, in a credit agreement, it is normal for the value of the TAN to be lower than the value of the APR.

Where can I find the TAEG amount associated with the loan?

It's very simple. If it is a mortgage loan, the APR value must be indicated in the FINE (European Standardized Information Sheet), whereas, if it is a personal loan, this rate must be included in the FIN (Normalized Information Sheet).

We also emphasize that when comparing the APR of different loans (with the same term, amount and reimbursement method), the proposal with the lowest value of this rate will end up being the cheapest for the consumer.

On a credit card, personal loan, car, home or even for any other purpose, it is definitely the APR that you should analyze to compare costs between institutions.

Last but not least, don't forget to also look at the Total Amount Charged to the Consumer (MTIC), which covers not only the loan amount, but also the total costs associated with it, thus translating what you will pay, in the end, for credit.

Font: Executive Digest