Whenever we need to ask for a financing to buy something in installments, TAN and APR indicate the interest rates, i.e. the cost of the loan we are contracting. The TAN (Nominal Annual Rate) is the actual interest cost which must be paid on the sum lent, while the APR (Global Effective Annual Rate) is the total and real cost of the loan, in fact it contains both the TAN and all other mandatory expenses. Practically the APR can be considered as a unit of measurement that allows you to compare various offers and understand which one is more convenient.
To understand this difference in practice and what the mandatory expenses may be that make up the APR and that differentiate it from the TAN, let’s take an example:
Manuel has to buy a new car, once he has chosen the vehicle he decides to ask for financing to pay for it in convenient monthly instalments. Manuel asks for a quote from the car dealership itself which also gives loans in support with finance companies, but then he also goes to his bank to ask for a quote for a loan. He asks both of them as a loan of 15,000 euros to be repaid over 15 years.
THE’offer from the dealer proposes the TAN at 4.00%500 euros of commissions for the management of the case, 350 euros one-off of compulsory credit insurance. In this case, the TAN at 4.00% but to know the total and real cost of the loan, all additional expenses must be considered. These individual additional expenses are those useful for calculating the APRwhich in this example could be equal to approximately 4.44%.
The bank’s offer provides the TAN at 4.20% and 200 euros of costs for the investigation (for the management of the case). Here, the TAN is higheral 4.20%. At first glance one might think that the offer is less advantageous for Manuel, however, given that there are no additional expenses other than the investigation, the APR it’s about 4.30% and so lower of the dealership. Although the dealership’s offer had a lower TAN, its APR was higher leading Manuel to have to pay a higher loan payment.
In summary, the TAN is useful for understanding how much interest is, but it is the APR that you need to observe to make a correct comparison between the different proposals and be able to make the best choice for your needs. Precisely for this purpose, taking advice from your financial advisor is a useful way to save excessive costs and have greater clarity of each individual cost item.
