In lending, interest is the fee that the borrower pays to the lender for providing the loan amount. The fee is usually calculated as a percentage of the borrowed sum. This percentage is called interest rate.

A distinction is made between the effective annual percentage rate and the nominal interest rate. With LEND, you can take out a loan with an effective interest rate starting at 4.5%.

Annual Percentage Rate (APR)

1. Definition of the term "APR"

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).

2. What factors influence the APR?

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.

3. The APR and the Consumer Credit Act

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.

Nominal Interest

1. Definition of the term "nominal interest rate"

The nominal annual interest rate (also referred to as nominal interest or debit interest) calculates the fee that a lender charges for granting a loan. In principle, the nominal interest rate refers to a calendar year. Therefore, it is always indicated by the addition p.a. (Latin: pro anno or per annum).

The nominal interest rate, together with the repayment amount fixed when the loan is taken out, results in the loan instalment, i.e. the amount to be paid monthly to pay off a loan.

2. Nominal interest rate vs. effective interest rate

The nominal interest rate does not take into account ancillary credit costs. These include all additional costs incurred in the context of taking out a loan, in particular fees for processing on the lender's side. If the ancillary credit costs are also included, the annual instalments to be paid result in the so-called annual percentage rate of charge. This is therefore always higher than the corresponding nominal interest rate.

Since there are sometimes significant differences in the ancillary credit costs between the individual credit providers, only the comparison of the APR enables a meaningful comparison of different offers. Accordingly, credit providers are obliged by law (Consumer Credit Act (KKG)) to disclose the effective interest rate.

3. Crowdlending vs. traditional institutions: Nominal interest rates in comparison

Due to their leaner processes, crowdlending platforms are able to offer loans at lower ancillary costs than most traditional institutions. The effective interest rates are correspondingly lower.

And nominal interest rates are also often lower with crowdlending. Unlike banks, P2P lending platforms do not provide their own capital. This saves expensive capital costs. The savings benefit borrowers and investors.

Maximum Interest Rate

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. The maximum interest rate is regularly reviewed on the basis of a fixed calculation formula and adjusted if necessary.