Two loan offers state different percentage figures. One offer looks cheaper for the nominal interest rate, the other for the effective annual rate. For a meaningful comparison you need to know what the number means and the same starting question. This article explains, for German consumer loans, individual basics of the effective annual rate and links them to its own comparison procedure. It does not calculate a concrete bank offer and does not replace financial advice.
A rate with a clearly described scope
§ 16 PAngV describes the effective annual rate as the annual percentage rate of the net loan amount for the total costs of the loan calculated according to the rules there. The calculation includes interest and certain other known loan-related costs. [PANGV] The term “total costs” thus refers to this regulated scope, not automatically to all the costs of your property purchase.
For comparing offers you should have explained which assumptions and costs underlie the specific stated figure. The number has its place in the decision. But it stands alongside term, payment schedule, fixed-rate period and further actual contractual terms.
Compare the same financing first
Our editorial recommendation: For each offer assign net loan amount, intended disbursement, repayment profile and fixed-rate period unambiguously. If one offer provides more money or envisages a different repayment, a pure percentage comparison does not yet explain which solution suits your needs.
Also note whether a figure is a general advertising example or actually describes the offer made to you. Use documents of the same status that belong together for the concrete decision. An old interest rate from a message and a later payment schedule do not constitute a common offer without checking.
Purchase costs remain visible as a separate item
§ 16 para. 4 PAngV names, among other things, notary costs and fees for registering the transfer of ownership as costs not to be included. [PANGV] A low effective annual rate therefore does not mean that these expenses have already been paid or are included in the purchase budget.
Record the actual purchase expenses incurred for your acquisition alongside the financing. Avoid double-counting where costs have in fact already been considered in the relevant payment schedule; have unclear items assigned. The article does not give a flat ancillary cost rate because your specific purchase and its handling are decisive for that.
A future interest rate is not a confirmed present figure
The calculation of the effective annual rate is made under statutory assumptions. For certain changes not yet numerically determinable § 16 paras. 5 and 6 PAngV contain rules for forming assumptions and refer to the annex. [PANGV] That does not create a guarantee that a subsequently actually agreed follow-up rate will turn out exactly like that.
Therefore ask how the period after an agreed fixed-rate period is presented in the offer and which variables are actually fixed. A simple comparative figure cannot anticipate every individual later development. The possible remaining debt and its further financing remain visible as a separate question.
Example: The same purchase, different repayment statuses
In the fictitious comparison two offers are available for the same planned purchase. Both initially have a monthly rate manageable for the person. The submitted payment schedules, however, show different outstanding remaining amounts at the end of the considered section.
The prospective purchaser therefore checks not only which offer gives the smaller percentage figure. They have the differing initial assumptions explained and set the actually remaining debt next to the payments envisaged up to that point. The example does not state invented current market rates and does not crown a blanket winner. Its benefit is the shared basis of reference.
Read additional conditions before choosing
Ask which further services or conditions are envisaged for the offered package and which of these are assumed for the stated terms. The PAngV distinguishes various cost and ancillary service cases. Which specific item was treated how will be clarified in the actual offer.
Desired possibilities such as a later change to the repayment profile or additional repayment are also checked by reference to the contract. A slightly different price can be associated with different features actually needed. The article does not generally assess their economic benefit.
Decide with a comparison note instead of an isolated ranking
Summarise for each offer the matching starting basis, the stated scope of costs and the important differences. Open assumptions are not supplemented in favour of the visually cheaper result. Appropriate advice can then specifically answer the questions that actually change your decision.
This is how the effective annual rate fulfils its role as a regulated credit price indication without becoming an apparent complete explanation of the property purchase. You compare a financing project that actually fits and keep purchase costs, future assumptions and contract design in view.