Effective interest rate (APR)

The effective interest rate (Effektivzins, APR) shows the actual total annual cost of a loan – including all fees and additional costs. It is ALWAYS higher than the borrowing rate.

What is included in the effective rate?

• Borrowing rate (the pure interest rate)
• Repayment crediting (when are repayments credited?)
• Processing fees
• Account management fees
• Disbursement rate (with a discount/Disagio)

What is NOT included?

• Commitment interest
• Valuation costs (surveyor)
• Fees for current accounts
• Notary costs

Sample calculation:

• Loan: €200,000, borrowing rate 3.1%, 10-year fixed rate
• Plus €500 processing fee, 2% discount
• Effective rate: 3.42% (instead of the 3.1% borrowing rate)

Why the effective rate is so important:

• Mandatory information: banks in Germany must state it in advertising (Price Indication Ordinance, PAngV)
• Comparability: ONLY the effective rate lets you compare loan offers fairly
• Rule of thumb: if the effective rate is much higher than the borrowing rate, the loan has high hidden costs