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What is the annual percentage rate (APR)?

Verified 24 October 2019 - Directorate for Legal and Administrative Information (Prime Minister)

The annual overall effective rate (APR), called up to 2016 overall effective rate (TEG), is the rate which takes into account the full cost of taking out a loan, namely:

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Consumer credit

  • Bank interest
  • File fees (paid at the bank)
  • Fees paid or owed to intermediaries (e.g. broker)
  • Cost of compulsory insurance (bank or other company insurance)
  • All other fees charged to you for obtaining the credit

Real estate

  • Bank interest
  • File fees (paid at the bank)
  • Fees paid or owed to intermediaries involved in the granting of the loan (e.g. broker)
  • Cost of Borrower Insurance
  • Security costs (mortgage or bond)
  • Property appraisal fees (paid to a real estate agent)
  • All other charges that are imposed on you to obtain the credit (opening a bank account, ...).

FYI  

for a loan financing the purchase of a dwelling in the future state of completion (Véfa), interest shall not be taken into account in the calculation of the APR.

The APR compares several loan offers according to their total cost, provided that the amount borrowed is the same (since the APR is expressed as an annual percentage of the amount borrowed).

Example:

  • if you borrow the sum of €10,000 over a period of one year and your bank charges a 4%, then you will have to repay the amount €10,400or €10,000 capital + €400 interest,
  • if you pay €100 for the filing fee, the cost of insurance and the guarantee fee, then you will have to repay in reality €10,500 over the period, or €10,000 capital + €400 interest + €100 other costs,
  • all additional costs representing 1% of the amount borrowed, then the APR on your loan is 4% + 1% = 5%..

Warning  

this simple example of a one-year loan illustrates the APR mechanism, but the calculation formula for multi-year loans is complex and cannot be presented on this page.

Credit institutions shall be required to indicate the APR in advertisements, prior credit offers and in loan contracts.

In the absence of a mention of the APR in the contract or in the event of a mention of an incorrect APR, the judge may cancel all or part of the interest. In determining the amount of interest forgiven, the judge shall take into account in particular the damage suffered by the borrower.

The APR may not be higher than the applicable rate of wear and tear, i.e. the maximum legal rate applicable in France. There are different rate of wear depending on your situation: amount borrowed, duration and type of loan (real estate, consumption...)...