The most important criterion when comparing installment credit is the annual percentage rate. But what exactly does it say? What costs are included and how binding is the calculation of the interest rate? We have summarized everything important for you and explain why an effective annual interest rate makes installment loans and Co. so comparable.
Installment loan effective APR: what the interest rate means
According to § 491 BGB, banks are required to show an effective interest rate in loan agreements. Section 6 of the Price Disclosure Ordinance (PAngV) regulates what must be included in this interest rate. Accordingly, the effective interest must include all interest and all other costs, including any agency fees, and must be expressed as an annual percentage of the net loan amount. Other costs include e.g. B. Account maintenance fees if the bank makes the creation of an account a requirement for lending.
However, the effective interest rate does not include costs for insurance and other additional services that are not a prerequisite for lending. This affects e.g. B. Residual credit insurance. It has not yet been conclusively clarified whether costs for the use of the Postident procedure have to be included in the interest if another free way of identifying is offered. Also not included are costs that only arise in the event of unscheduled repayment B. Reminder costs or prepayment penalties.
It is typical of the German market that effective annual interest and nominal interest are given in parallel for an installment loan. The effective interest rate is always above the nominal interest rate. This also applies if there are no other costs besides the interest: Then the effective interest must include the compound interest that accrues on the nominal interest.
What does the interest rate depend on?
§ 6 PAngV regulates with a detailed formula how effective annual interest, repayment rate and total costs are to be calculated for an installment loan. There is a reason for lawmakers to regulate this so strictly: consumers can only compare interest rates easily if all banks use the same calculation method. With other calculation methods, the reported interest rates could deviate significantly from the effective interest rates common in Germany today.
The effective interest rate is the most important criterion when comparing installment loans. The level of the interest rate depends on several factors. For one thing, banks can charge higher or lower prices (interest rates), like providers of other products. However, the loan term and the creditworthiness of the borrower are decisive for the amount of the interest rate. The longer the term and the weaker the credit rating, the higher the financing costs.
Some banks set a single interest rate and grant loans if applicants have the creditworthiness required for that interest rate – otherwise there is a rejection. Other banks scale their interest rates depending on their individual credit rating. Here you will only find out which conditions apply to you in the application process. For guidance, however, banks must provide a representative example of the effective interest rate in accordance with Section 6a PAngV. This should be chosen so that two thirds of the borrowers actually receive this or a cheaper interest rate.
Conclusion: The annual percentage rate is the measure for credit costs
The annual percentage rate is a fully standardized calculation method for interest rates, regulated in detail by § 6 PAngV. The effective interest rate must include all interest and other costs of a loan and be expressed as an annual percentage of the net loan amount. Are included e.g. B. also agency fees, compound interest and account management fees.
However, the premiums of any residual credit insurance are not included, since the conclusion of the policy is not a condition for the granting of credit. Due to the standardized calculation method, the effective interest rate is the most important criterion for qualified loan comparisons, such as those used for B. can be found on Astro Finance.