What interest rate should I pay attention to the TIN or the APR?

Equivalent Annual Rate or Effective Annual Rate (APR)

The APR reflects the effective cost or performance of a product. It is used as a reference interest rate to standardize different types and conditions of loan and credit operations when there are different settlement periods, expenses, etc.

It is calculated taking into account both the nominal interest rate of the operation, as well as the frequency of payments (monthly, quarterly, etc.), bank commissions, and some expenses of the operation.

This last point is important since it is one of the main differences concerning the TIN.

In the case of loans or credits at a variable interest rate, since it is not possible to know the future evolution of the interest rate, the APR is calculated assuming that the rate remains stable at the value it has at the time of calculation. In these cases, the interest is called “Variable APR”. The entities must indicate that it will vary with the revisions of the interest rate.

If a deposit is contracted, the client will have to pay attention to this interest rate because it is the one that will actually be charged at annual maturity.

Nominal Interest Rate (TIN)

The TIN is the fixed percentage that is agreed as a concept of payment for the money borrowed, as well as what the entity pays for lending a certain amount. It does not include expenses or commissions, and its periodicity does not have to be annual when referring to the total period of the investment.

The TIN and the APR will coincide when the interest is paid at the maturity of the product. But if there is more than one payment, the TIN will always be less than the APR.

In the case of a deposit, if the TIN is for one year, it will coincide with the APR, but if the deposit matures quarterly, for example, the interest that will be applied will be the TIN, so it will be lower.

The APR is used to compare different offers of financial products between entities. In addition, being annual allows a better comparison than the TIN, which is referenced to different periods.

The Bank of Spain has a simulator for the APR of a mortgage or personal loan operation based on: the same amount, its nominal interest rate, the repayment period, commissions, and, if necessary, the protection insurance premium of payments.

In the case of mortgage loans,  the APR reflects the real cost of what the client will pay for the money borrowed throughout the life of the loan, including expenses such as annual damage insurance premium, registration, management, appraisal, and tax of acts documented legal requirements, as long as they are assumed by the client.

On the contrary, the TIN reflects the interest rate that the client pays annually without including other costs so that it only indicates the interest that will be paid during one year for the principal.

It is always convenient to know the APR because it is the real cost of the mortgage that the client must pay. However, the actual APR will depend on the amount requested, the term, etc. Therefore, until all the details are closed, this interest will not be adjusted to reality.