In the world of nominal loans, there are concepts that you should consider beyond interest expense, commissions or the total cost of financing. These concepts involve topics such as APR or TIN, which are essential when requesting an account or making a financial transaction.
That is why before signing any contract, before seeking a nominal loan or requesting a loan, it is better that you know what each of these concepts means. Do not worry, here we explain its meaning, as well as the main difference between the two in order to make the most of a nominal money loan.
What is the APR?
Defined as an equivalent annual rate, this concept developed by the Bank is used as an indicator in the form of a percentage that is used to compare mortgage offers. In this way, the APR represents one of the most important points when seeking financing to acquire a property.
Calculated by a mathematical formula, the Annual Equivalent Rate is a mathematical calculation that involves topics such as commissions, frequency of payment, interest and more excluding points such as notarial costs. In the end, this concept will determine what type of nominal loan is much better at annual cost.
What is the TIN?
The TIN is basically the nominal interest rate, which defines the form or type in which the bank will charge interest. Remember that there may be interests of simple, fixed, variable, compound type, etc. In this way, the Nominal Interest Rate defines the interest that will be charged for a loan.
According to the bank , the TIN is the fixed percentage that a bank will charge for the concept of a loan or financial product, that is, its profit. It is necessary to consider that to value the nominal interest rate when comparing loan options is basic since from this we can find the best offer. The TIN is just as important as the term, for example.
What are the differences between TAE and TIN?
The differences between these concepts are quite simple, we summarize them below:
- Nature: First, the nature of these concepts is different. While the Nominal Interest Rate talks about the interest rate on loans in general and their interests, the Annual Equivalent Rate talks about the annual rate focused on the mortgage segment, that is, it focuses on a total cost of a specific type of credit or financing .
- Calculation: Although both are calculated through mathematical formulas, the first is easily calculated by being expressed as a percentage using only interest. On the other hand, the APR is calculated using a slightly more complex formula which involves a number of factors, including points such as interest, terms, fees, deposit frequency, operating expenses, etc.
- Use: Finally, one of the most significant differences between TIN and APR is its use. For example, the TIN only serves as a reference to know how a loan will behave, instead, the APR will let you know when a certain mortgage loan is convenient for you.
Which is more important for the consumer: the TIN or the APR?
Valuing the main differences between the Nominal Interest Rate and the Annual Equivalent Rate, as well as its meaning, we can see that the second is only an informal indicator while the first turns out to be a real reference. Therefore, the latter is more useful when looking for a mortgage since it will give you a much wider picture when considering more factors such as nominal payment dates or interest during your calculation.
A banking institution is obliged to give its client the value of both concepts.