Learn what the APR and the TIN are


In the conditions of a loan contract you will always find the term Annual Equivalent Rate (APR), which refers to the interest that indicates the price or utility of a financial service. But how is the APR calculated? It is through an arithmetic formula that includes the periodicity of payments, the interest rate, some commissions and operating costs.

Learn what the APR and the TIN are

In other words, the APR is what the user actually ends up paying after hiring a financial service such as a loan, taking into account that it includes all the elements within a personal loan. Thanks to the APR you can know the real costs of a banking service. So when you read or hear "profitability of 6% APR", "loan to 2% APR", you know what it means.

If you get to obtain a financial service in which the APR appears, you should know that the higher the percentage, the more will be the additional expenses that you will have to assume. It is important that you are aware of the return period. That is, if two financial products offer the same APR, then you can evaluate which of the two is more convenient. However, if you are dealing with different repayment terms, making that comparison is a bit more complicated.

Until the end of the last century (1990), only the Nominal Interest Rate (TIN) was considered to deduct the income of a financial service or product. However, the fact that certain commissions and other types of expenses that the client had to bear were left out led to the creation of the APR, which does include those variables that the TIN does not take into account.

Currently financial services include both APR and TIN. But what exactly is the TIN? It is the interest rate that the customer must pay the bank for lending you the money, without taking into account the aforementioned additional expenses that they will also have to assume. Therefore, the TIN is only one of the values ​​included in the APR and generally in personal loans the APR will always be higher than the TIN. Something else to keep in mind is that comparing the TIN of different financial products is not an effective method because it does not include all operating expenses.

So, since you know what each of these concepts mean, you can better evaluate which loan is best for you. For example, loans that claim to be 0% interest are often very common. You may have already come across an offer of this type and have compared it to another offer, with the same payment term. However, the fact that it has 0% interest does not mean that this is the best offer on the market, because what you really need to know is what the APR of that loan is. Therefore, if that 0% TIN loan has a higher APR than another loan offer with a 5% TIN, but a lower APR, then this last option will be the most convenient. In other words, it is important to always read the fine print and make sure about the total costs of the financial product you are purchasing.

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Roger molins Jerome P Allison ( LinkedIn )
I am a freelance writer and consultant for companies and individuals, with a particular emphasis on fintech, technology, startups and online marketing. More information ...

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