Last update: 18/08/2021

When applying for a loan, we must consider two things: the nominal interest rate (NIR), which is the price we pay for the money we will borrow; and the annual percentage rate (APR), which includes the fees, loan term and the NIR. Here, we’ll learn all about how these concepts affects a loan or mortgage. 

What’s the difference between NIR and APR?

The NIR is the price we pay for a loan (the money the bank charges us for the capital borrowed). It’s a percentage of the amount lent by a bank to set the parameters of a transaction such as a mortgage. The NIR is usually calculated monthly and must be included in deposits, loans, mortgages and other banking products. It’s all right here in this text by Finanzas para Mortales (Finance for mortals). 

The APR comprises many variables, including the NIR, fees associated with a hypothetical event such as cancellation or repayment, the costs of the transaction and the arrangement fee. It doesn’t include other costs to acquire a product, such as notary fees, insurance or linked products. The APR is calculated using a mathematical formula, which for Spain you can check here. 

NIR and APR of financial products

As noted in this article by Santander Consumer, we generally find these concepts in three types of financial products: savings products, personal loans and mortgages.

What are the NIR and APR of a bank loan? The APR of a bank loan is the actual amount a customer will pay for borrowing money. It includes loan fees, term and interest rate (see more about this in the Sano de Lucas dictionary). It acts as a rucksack in which we can put almost all of what will ultimately form part of the loan. 

APR also lets us find out the total cost in a simple way; it’s the money the bank has lent us plus the expenses already included in the APR. For example, if we apply for €100,000 with an APR of 1%, the total loan amount would be €101,000, which is what we must pay back.

As an indicator of the annual interest rate and fees, APR is very useful for comparing different loans with the same term. However, when applying for a mortgage, it is also advisable to take into account other factors such as the property valuation. 

Loan agreements usually highlight NIR . However, as it appears independently, we must remember it forms part of a larger rucksack with associated expenses, fees and other times. Therefore, what we should look at when comparing loans is their APR because it covers a large proportion of related costs and will give us a clearer idea of the total amount to be paid. If you’d like to find out more about these concepts and their differences, check out this Openbank article.