Concept in Definition ABC

The acronym TAE stands for rate equivalent annual, a concept that is part of economic terminology and, more specifically, of banking activity.

The APR is a bank rate that encompasses a set of concepts. On the one hand, the TIN, that is, the nominal interest rate, which could be defined as the percentage of interest that is agreed between a Bank and the client and that has an annual rate reference (for example, in a loan, it would be the extra money that must be added to the borrowed capital). On the other hand, the APR incorporates the set of expenses and commissions that the bank will charge us in the different operations included in the hiring of a banking product. Finally, the APR also includes the term that affects the operation (for example, a term of one year). In this sense, it should be noted that the APR is not always annual, as some of the banking products have another type of term. In this way, as consumers it is advisable to compare the APR in those products that are affected by the same term.

The purpose of the APR and its proper interpretation

The objective of this rate is to simplify banking operations and customer information. In fact, the APR was incorporated in 1990 by the Bank of Spain as a mechanism to avoid confusion with the TIN and with the other expenses associated with financial products.

The APR is always expressed in percentages and can refer to the cost effectiveness that we will obtain if we make a deposit in the bank or the interest that they will charge us if it is the bank that lends us the money. The APR is a mandatory rate and includes the expenses associated with the items already indicated (the TIN and bank expenses and commissions), but not all expenses, that is, fund transfer fees, possible appraisal expenses, payment to the notary or to the record, insurance or taxes.

Thus, when we observe an APR percentage in the advertising It must be borne in mind that in certain operations (for example, a bank loan) we will have to pay additional expenses.

Banking terminology

Most people have some relationship with a bank and because of this they have to understand the specific vocabulary of banks. There are concepts that are relatively easy to understand (such as credit on account, guarantee, credit account, overdraft or currency). There are more complex terms (bond junk, subordinated debt, derivatives or indexed loan). On the other hand, we find a whole series of specific acronyms (Code BIC, IBAN Code, CNMV, APR, TIN, among many others).

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