What is the APR of a loan?

The Annual Percentage Rate or APR is an indicator in the form of an annual percentage rate that is used to compare the real cost of two or more loans over a specific period, even if they have different terms and conditions.

How to calculate the APR of a loan

The APR is expressed as a percentage and is calculated using a standardised mathematical formula based on the nominal interest rate (NIR) - the price the bank charges us for lending us the money; the frequency of loan repayments (monthly, quarterly, annually, etc.); bank fees and costs of the transaction that the consumer agrees to.

In the case of loans, the APR includes the fees charged by the bank with the exception of costs arising from the customer's failure to comply with payment obligations. For calculating the APR, other costs such as notary fees are excluded.

In Spain it is mandatory for the Annual Percentage Rate to be included in documentation and advertising of financial products wherever reference is made to some economic aspect of the loan.


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