If you are looking for a mortgage or personal loan, surely TIN and APR will be two concepts that appear frequently in different bank offers, but what is the difference between the two terms? Which of them offers you clearer and more accurate information to make a decision?
We tell you all its particularities.
TIN or APR What to look for?
The first thing we should know is that both are official concepts introduced by the Bank of Spain. The APR is more recent since it emerged in 1990 with the mission of completing the information offered by the TIN.
NIR (Nominal Interest Rate)
The term NIR gives us information about the volume of interest we have to pay if we borrow money from a financial institution. It is the interest rate that the bank receives for lending us the money. It is measured in percentage and is fixed.
Its calculation responds to a simple mathematical formula:
NIR = Euribor + differential
The result is the value of the effective cost of the requested financing.
This value is considered insufficient because although it provides information in terms of interest paid, it leaves out of its calculation other associated expenses such as bank commissions or expenses of the operation.
If we want to know the total amount of money we are going to pay for a loan we must pay our attention to the APR.
APR (Annual Percentage Rate)
This rate takes into account the nominal interest rate of the loan (NIR), the frequency of its payments, bank commissions (cancellation, amortization, etc.), related products and the financial expenses of the operation. In short, it reflects the total cost of the financial operation.
Characteristics of the APR
This index will vary depending on the type of loan we want to request, so it is necessary to be careful when comparing different financial offers.
The APR of a fixed-rate mortgage will not be the same as the APR in a variable mortgage loan.
When the interest rate is fixed, we will be able to know clearly and accurately the cost that we are going to bear for requesting the operation. When the loan is variable, the value of the APR will be approximate since it is calculated taking into account the value of the interest at that moment of time. The rest will be estimates. This is why you’ve heard of variable SAD.
Another difference with respect to the NIR is that the APR is an annual index, that is, it reflects what you pay for a loan in a year.
Aspects to take into account of the APR
Despite being the value that provides more information, we must know that it does not include expenses for some concepts such as notary or expenses to third parties.
On the other hand, current legislation obliges all financial institutions to inform customers in writing by stating the APR in different documents. This must be done before the formalization of the loan.
It should also appear in the advertising campaigns of the banks so that there is no doubt.
Another factor to take into account is that the difference between the APR and the NIR is usually greater in personal loans than in mortgages.