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Credit auto, real estate, staff or work, the abbreviation TEG, often misunderstood, is inseparable from the loan you covet. But what is hiding behind the Global Effective Rate?
What is the TEG?
Who says credit says interest. But not only. When you take out a loan, in addition to the loan amount, which will be credited to your account, and which we commonly call capital, you agree to repay a whole sum of money inherent in that loan, which must be called interests.
In France, all of these amounts have been grouped together, since 1 October 2016, under the acronym TAEG, for Global Annual Effective Rate. Through this rate, you will really know the cost of your credit. That is, the capital requested, plus interest.
What is included in the APR?
Thus, in addition to the bank interest, the costs of the files, which can be negotiated with the lender, the cost of the compulsory insurance, also negotiable, the guarantee costs, and than all other fees charged for obtaining the credit.
Once the APR is obtained, you will be able to easily know the total and final cost of your loan. It is a matter of multiplying the rate in question by the sum borrowed, which will be multiplied again by the number of years of repayment.
Example illustrating our remarks:
You borrow $ 10,000.00 over 2 years.
The bank interest rate is 5% per annum. That is, 5% of 10,000.00 $ for two years, so twice 500.00 $ = 1000.00 $ of bank interest, plus other costs (insurance, fees …).
Let’s say that this extra charge is 1%, which is 100.00 $ for 10 000.00 $, also for 2 years, so 200.00 $.
For a borrowed capital of 10,000.00 $ over two years, we therefore have an APR of 6% (5 + 1), which represents: 10,000.00 X 6% = 600.00 $ per year, ie 1 200.00 $ for two years.
Your credit will therefore have a cost of $ 1,200.00. In other words, in addition to the $ 10,000.00 borrowed, you will have to pay $ 1,200.00 interest, or $ 11,200.00.
This example will simply allow you to understand the mechanism of the APR
Of course, for long-term loan contracts, or for larger sums, other parameters will come into play. The profile of the borrower will also be decisive. Computational formulas can become much more complex, however, the mechanism remains the same.
Can the APR be different depending on the nature of the loan, the bank?
Each credit category has a rate of attrition set by the Francia Bank. Theoretically, this rate can not be exceeded. Thus, the APR depends largely on the nature of the loan, the bank, or the profile of the borrower.
Whether for the purchase of a vehicle, a house, a TV, it will be different, but not higher than the applicable rate of wear.
As a general rule, for each loan category, the rates may differ from one bank to another, while remaining substantially in the same range.
However, for large sums over fairly long periods, we are thinking here of real estate loans, a variation that may seem small between two rates, often represent hundreds or even thousands of USD.
Regarding mortgage credit, it is important to note that the APRC does not take into account notarial fees.
How to know the APR that will be applied to me?
Whether it is an advertisement or a previous offer of credit, the law is clear on this subject, the APR must always be indicated. Likewise, it is imperative that it be clearly mentioned on all loan contracts.