Annual Percentage Rate

1. What factors influence the APR?

2. The APR and the Consumer Credit Act (KKG)

The APR (also: annual percentage rate of charge) quantifies the total cost of a loan that a borrower has to pay. The APR is expressed as a percentage. If the interest on a loan is variable during the term, it is referred to as the initial APR and is usually given on an annual basis. Consequently, the interest rates usually contain the addition "p.a." (per annum = per year).

While the "nominal annual interest rate" only indicates the interest payments, the "effective annual interest rate" includes all costs of a loan. Only by taking into account all costs incurred when taking out a loan does the prospective borrower have the possibility of easily comparing individual loan offers.

The APR is calculated from the following factors:

• The debt at the beginning of the year

• The monthly instalment, which includes interest and repayment

• The nominal interest rate

• Other costs for the borrower after the loan has been taken out (e.g. processing fees).

Please note: In individual cases, the annual percentage rate does not include all costs. For example, account management fees or partial disbursement surcharges for real estate financing are not always shown.

The APR is usually determined by the lender only after the credit check. Credit granted is the money that the lender makes available to the borrower.

According to the Consumer Credit Act (Konsumkreditgesetz), the APR must be explicitly stated in the credit agreement. If this is not possible, the annual interest rate and the costs charged after conclusion of the contract must be stated.

In Switzerland, the maximum interest rate for consumer loans (cash loan) and overdraft credit (e.g. credit cards) is set by the Federal Council (in the Ordinance to the Consumer Credit Act). Interest rates that exceed the set limit are illegal.