The lack of liquidity for an unexpected expense, the need to support a purchase of a certain importance are the conditions for which so many people resort to the request for a loan. Given the importance of the issue, it becomes almost necessary to know how to move among the innumerable offers of loans that are seen daily advertised online, in newspapers and magazines. It is important to choose the solution that best suits our specific needs and, why not, the most convenient solution.
The importance of reading the contract
As we all know, obtaining a loan depends on many factors: personal income, family and asset status, and the credit history of a person. The financial companies and the banks carefully evaluate the customers’ financing requests, attributing to each one a sort of reliability or, if not, a risk. The credit system, therefore, puts in place a wide range of strategies to avoid unnecessary risks, deciding to whom and in what ways to provide credit.
However, the applicant must also make his own assessments when he has to sign a financial contract. It is essential to read the contract and the conditions and carefully evaluate the convenience of what is submitted to us.
First, a loan can only be granted by an institution or a credit company authorized: these are credit brokers regularly registered in a special register. It is fundamental to take into account, in the choice of a loan, the capital financed with respect to the TAN, ie the nominal annual rate and the APR, ie the annual percentage rate.
Generally, one is inclined to evaluate the convenience of the installment, or of the tan alone. It is a mistaken belief, the real parameter to keep an eye on is always the Taeg.
What is the APR?
Let’s start with the basics. What is the Taeg? The APR is the indicator of the interest rate and the total costs of a financing operation. It is expressed as a percentage and indicates the actual cost of a credit transaction.
The APR ( Effective Global Annual Rate ) is the parameter to be taken into greater consideration in the choice between different financial products. The value expressed with the APR is a value that we can define compound: it is the interest rate to which are added all the other expense items related to the loan.
The items of expenditure that contribute to the formation of the APR are the following:
- the preliminary costs,
- the costs of reviewing the loan,
- the costs of opening and closing the file,
- the costs of collecting refunds e
- the cost of collection of the installments,
- insurance costs,
- the possible cost of the mediation activity,
- any other expense connected with the financing operation, provided that it is included in the contract.
The following expenses are excluded from the calculation of the APR:
- expenses for optional insurance policies,
- state stamp duties,
- taxes (or all those expenses that are not provided by the funding body).
The Taeg thus represents a valid tool to allow the customer to know the actual cost of a loan, since this value includes every cost item that affects the actual cost of the loan. The APR is therefore the perfect tool for those who have to choose between several proposals and offers and look for a reliable parameter to compare various estimates and solutions.
Beware of insurance policies
But we must be careful. Financial institutions often impose one or more non-compulsory insurance policies. These costs are not included in the Taeg calculation but are spread over the installment for the entire duration of the financial transaction. The installment will thus have a slight increase.
Therefore, in full compliance with the law, it is possible for banks and financial institutions to advertise a low APR compared to the competition by hiding the cost of an non-mandatory insurance policy in the final installment.