APR (Annual Percentage Rate)
APR is the real annual cost of a loan or mortgage, expressed as a single percentage that includes both interest and the associated fees.
APR (Annual Percentage Rate) is a standardized indicator, required by law, that lets you compare the real cost of different mortgages or loans even if their conditions differ. Unlike the nominal interest rate, which only reflects the interest the bank charges, APR also folds in the opening fee, mandatory costs (such as insurance the bank requires to grant the loan), and the payment frequency, summarizing everything into a single annual percentage.
That's why APR is almost always higher than the nominal rate: two offers with the same nominal rate can end up with a different APR if one of them includes more fees or mandatory costs. When comparing mortgages or loans from different banks, always look at the APR rather than just the advertised nominal rate, since a lower nominal rate with high fees can end up more expensive than a slightly higher nominal rate with no fees.
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Frequently asked questions
What's the difference between APR and the nominal rate?
The nominal rate is just the interest the bank charges on the outstanding balance. APR adds the loan's mandatory fees and costs to that interest, so it better reflects the real annual cost and is usually a higher figure than the nominal rate.
Are banks required to disclose the APR?
Yes, banking transparency rules require APR to be included in advertising and in the binding offer for mortgages and loans, precisely so customers can compare offers on a like-for-like basis.
Does APR always include every mortgage cost?
APR includes the mandatory costs of granting the loan (fees, insurance required by the bank), but not optional costs the customer chooses to add, nor notary/registry costs that don't depend on the bank.