Mortgage credit: What is the difference between APR and APRC?

TAN and TAEG: What do the acronyms mean?

First of all, you should know that TAN and TAEG are two types of interest rates applied to loans, not only for housing but also personal loans, credit cards, among others.  

It is important to know what these rates mean, as they represent the amount of interest, in other words, the cost of the loan, added to the installment you pay monthly to the bank.

The acronym TAN refers to Nominal Annual Rate, and the acronym APR means Annual Percentage Rate. But what does each one represent in housing credit, and what is the difference between them?

What does APR represent in mortgage credit?

The Nominal Annual Rate (NAR) represents the value of the interest rate that is added to the total amount of credit. Its percentage results from the sum of the index (Euribor in the case of variable rate), with the spread. In the case of a fixed rate, it corresponds to the sum of the contracted fixed rate with the spread.

In the end, the APR translates into the cost we are incurring when contracting the credit in question. This is a mandatory rate for all credits and lasts for one year. Therefore, the APR is calculated through the following formula:

Loan amount x Annual nominal interest rate percentage/12 months 

Therefore, in a loan of 200,000 euros and an interest rate of 3%, the value of the interest would be:  

200,000 x 0.03/12 = 500 euros 

However, when comparing the conditions of various banking proposals, note that having a lower APR does not mean cheaper credit. This is because the APR does not include charges associated with mortgage credit that should also be taken into account. In other words, lower interest rates do not necessarily mean it is the option that will save you the most. Therefore, we should also analyze the APR.

What is the difference between TAN and APR?

The Annual Effective Global Charge Rate represents the total cost of the loan, including interest and charges. In other words, it is the sum of the total amount of interest with the total charges associated with the credit, such as taxes, commissions, required insurance, records, among others.  

Therefore, it is the APR that demonstrates the total cost of credit to the consumer, so it is one of the values that should be considered when comparing proposals between banks.

The calculation of the APR is done in the same way, by multiplying the loan amount by the interest rate percentage, divided by 12 months.

What is the impact of APR and TAE in practice?  

In practice, let's look at an example comparing two banking proposals to understand the difference between the impact of APR and TAEG on a mortgage. In a loan of 200,000 euros, Bank A proposes an APR of 3%, and Bank B makes a proposal with an APR of 4%. Not being informed about the impact of this rate on credit, initially, one would think that the proposal with the lower APR would make more sense.

However, considering that bank A proposes an APR of 4.5%, and bank B a proposal of 4.2%, the scenario changes. Through calculations, it is possible to perceive that, in this case, the proposal with the highest APR is the most beneficial. This is because, just taking into account the APR, at bank A you would pay 500 euros in interest, while at bank B you would pay 666.7 euros. But if we analyze the overall rates, the APR, at bank A the interest amounts to 750 euros, and at bank B to 700 euros:  

In other words, even with a lower APR, at bank B you would be paying 50 euros less in interest, considering also the associated credit charges.  

Therefore, it is essential to evaluate the APR as a reference for comparison between credit proposals, to make an overall assessment of the cost we will have when hiring the loan.  

So that you don't have doubts, you can always ask for help from a credit intermediary, such as Poupança no Minuto, through totally free services. This way, you can ensure guidance throughout the entire credit contracting process quickly and simply.