From the outset, we can say that the interest rate is truly the nerve of the war for loan applicants. Indeed, it is the first thing the client will look at, and it is normal because it is the interest rate that will essentially determine the amount of their annual repayment. However, we will see that it is not the only criterion to be attentive to.
1. The difference between the APR and the interest rate
The annual percentage rate, abbreviated as A.P.R, is the interest rate that affects a consumer credit or an installment loan.
In terms of 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 APRs are determined by law. They are therefore not left to the discretion of your bankers. Note that a credit intermediary, not being a financial institution, has very little power in this matter apart from their commission.
Since February 1, 2007, a new method allows setting the maximum annual percentage rates.
At the end of March and the end of September, it is examined whether the maximum percentages will be adjusted following a minimal change in the reference indices of 0.75 points. The reference index for opening credit is the monthly average of the three-month interbank Euribor interest rate. The new maximum annual percentage rates come into effect 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, particularly risk management and the duration of the loan. A credit institution indeed increases its interest rates based on the risks it incurs for a loan extending over time.
3. Why are interest rates significantly lower than APRs?
To simplify , the difference in rates between the two types of credits is first explained by the notion of guarantee requested from the borrower for mortgage loans: mortgage, surety, or lender’s privilege, which significantly reduce the cost of defaults. In terms of mortgage credit, the bank takes a mortgage registration on your house and therefore has a choice guarantee. Consequently, it can afford to offer lower interest rates.
4. What are the main interest rates?
Interest rates vary both depending on the type of credit and the length of the repayment spread over time and the guarantees offered by the borrowers.
It is quite evident that the more the duration of the loan is spread over time, the lower the interest rate will be.
Similarly, the more significant the guarantees offered, the lower the interest rate will be.
Let’s mention some categories of different APRs:
· 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 available on our website is in this matter a valuable tool that ensures total transparency.
5. Is the interest rate the only element I should be attentive to?
No, the loan applicant should also distinguish between variable rates and fixed rates. Often, loans with variable rates first favor 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 consumer’s interest, who repays their capital more quickly.
6. How to explain the difference in interest rates between credit brokers?
Since the amount of interest rates is determined by law, it is essentially on the broker’s commission that the difference will be made.