Surely you have heard of expressions such as EURIBOR, Spread, Nominal Rate, but if you sound archaic Chinese, this article is for you, since it is important for us to know what these expressions mean and what their impact on your life is.
But first, something more familiar: how is the price of a beer determined?
It is possible that you like beer and you have never wondered how the price of a mini is determined. Yes? As with any business, the price is determined by the sum of:
- Cost of production – Are fixed costs, are variable costs, are all costs that the company incurs to produce a bottle;
- Profit Margin – Those who sell beer are not the Santa Casa and need to make a profit, which they can use to remunerate their shareholders and to invest in their business.
So how is the price of your credit determined?
- Beer – Credit
- Euros – interest rates
- Production cost – EURIBOR
- Profit Margin – spread
If in the case of beer we speak of Euros, in the case of credit we speak of interest rates . In practice, the cost of production in the bank is the EURIBOR (how much the bank used to borrow money) and the profit margin is the spread, which varies according to the risk of the operation. Risky credits justify higher rates . Loans with more collateral will be cheaper . Risk and return always go hand in hand.
And where does APR come in?
TAN = EURIBOR + Spread
The interest rate on your credit is the sum of EURIBOR and Spread. When you take out a loan you should pay attention to:
- The interest rate;
- The APR (Annual Effective Annual Rate).
The latter is the rate that includes all costs, charges and commissions that are associated with a loan . For example, in the case of a housing loan you will have the usual commissions, insurance and any products you can hire to lower your spread. This is the rate you can and should use to compare different alternatives because in many cases “cheap is expensive”.
How to have a cheaper credit?
To have the cheapest credit you should choose the alternative with the lowest APR . To do this, you should:
- Negotiate your spread, offering guarantees
- Weigh well the products to be contracted and their impact on the value of the final installment.
Now that you have all this information and wisdom is your best partner in saving, be sure to simulate your multi-purpose personal credit provision on ACG Bank.