Advertising? …we’ll always have the APR.
Credit institutions occasionally launch advertising campaigns of loans with a very low nominal interest rate or even with no interest at all, this is, a 0% interest rate.
Did you know that Banco de España requires that supervised credit institutions must provide clear, sufficient and not misleading information about the products they advertise? And also that there are certain general principles that supervised credit institutions must meet so that the information they provide is as understandable as possible? But, let’s leave regulations to one side and focus on what really matters.
The following are a few tips on the basic aspects we should focus on when checking an ad for a personal loan or another financial product:
- They key element would be the APR, which will allow you to compare between different offers.
- The annual nominal interest rate and if an arrangement or assessment fee will be charged.
- If the initial instalment is different from the rest and how much it would be.
- If you are required to take out a tied product, such as an account or an insurance.
- The total price or the total price in instalments.
- The term: paying low instalments for five years isn’t the same as paying a higher instalment for two years.
If you have all the necessary information, you will find it easier to choose the most affordable option.
The following are a few examples:
If we buy a tablet PC for 500 Euros and we pay it back in one year.
- With no interest, or what would be equal to a 0% interest rate and a 10 Euro management fee: the resulting APR would be 3,81%.
- If the same item is financed with 2,5% interest rate and no management fee: the APR would be 2,51%.
- If the informed APR is 0%, don’t doubt: the interest rate is 0% and no management fee is charged.
A 3.000 Euro loan at 8% interest, without fees or expenses, with an APR of 8,29%:
- If we pay it back in five years, each instalment would add up to 60,83 Euros, and the total debt would be 3.649,75 Euros.
- If we pay it back in two years, each instalment would add up to 135, 68 Euros, and the total debt would be 3.256,35 Euros.
Would you like to work out this same example of a 3.000 Euro loan at 8% interest, but with a 2,5% management fee and life insurance with a 50 Euro annual premium? You may do it using the following links:
For further information on consumer credit, click here.