There are undoubtedly many of you wondering how and by whom the interest rates that affect your credits in Belgium are set. This is what we will examine in a very simplified way in this article.
From the outset, we can say that the interest rate is truly the crux of the matter for prospective borrowers. In fact, this is the first thing that the customer will look at and this is normal because the amount of their annual repayment will essentially depend on the interest rate. However, we will see that this is not the only criterion to which we should pay attention.
1.The difference between the APR and the interest rate
The annual effective rate, abbreviated T.AE.G, is the interest rate which affects a consumer credit or an installment loan.
When it comes to mortgage credit, we talk about interest rates.
2.How are the amount of the APR and the amount of interest rates determined?
The minimum and maximum T.A.E.G. are determined by law. They are therefore not left to the discretion of your bankers. Note that a credit intermediary that is not a financial institution has very little power in this matter apart from its commission.
Since February 1, 2007, a new method has made it possible to set the maximum overall annual effective rates.
At the end of March and the end of September, we examine whether the maximum percentages will be adapted, following a minimum modification of the reference indices of 0.75 points. The reference index for opening credit is the monthly average of the three-month Euribor interbank interest rate. The new maximum overall annual effective rates come into force on the first day of the second month following the month of their publication in the Belgian Official Gazette.
Regarding interest rates: several key factors are behind the calculation of the rate, risk management and the duration of the loan in particular. A credit institution increases its interest rates according to the risks it incurs for a loan extending over time.
3.Why are interest rates much lower than APRs?
To simplify, the difference in rates between the two types of credit is explained firstly by the notion of guarantee requested from the borrower for real estate loans: mortgage, guarantee or privilege of the lender of funds which greatly reduce the cost unpaid debts. In terms of mortgage credit, the bank takes a mortgage registration on your house and therefore has a guarantee of choice. As a result, it can afford to grant lower interest rates.
4.What are the main interest rates?
Interest rates vary both depending on the type of credit but also depending on the length of the repayment spread over time and the guarantees offered by borrowers.
It is obvious that the longer the duration of the loan, the lower the interest rate will be.
Likewise, the greater the guarantees offered, the lower the interest rate will be.
Here are a few different APR categories:
·New car financing (around 4%)
·Used car financing (around 7%)
·Work financing (around 5%)
·Consumer loan (around 9%)
·Mortgage credit (around 4%)
· …
Our credit simulator on our website is a valuable tool in this regard and provides you with total transparency.
5.Is the interest rate the only element I need to pay attention to?
No, the prospective borrower should also distinguish between variable rates and fixed rates. Very often, loans with variable rates primarily focus on the repayment of interest, while loans with fixed rates prioritize the repayment of capital. The latter are of course always slightly higher but are more concerned with the interests of the consumer who repays their capital more quickly.
6.How to explain the difference in interest rates between credit brokers?
The amount of interest rates being determined by law, it is essentially the broker’s commission that will make the difference.
