Why is the APR on mortgage loans so high?
According to the Credit Agreement Act and the Price Labeling Act, the APR (annual percentage rate) must be disclosed to the consumer together with the other loan expenses. This requirement is set up to give the borrower as fair an overview as possible of what the loan will actually cost. The APR must be disclosed regardless of the type of loan. consumer loans.
Because there can be many different costs associated with taking out a loan, MOL has been introduced to bring these costs together in one concept. MOL is thus a yardstick that is based on many different types of costs.
Info about MOL on quick loans
The list of elements to be recognized in the OPP is long, but in addition to interest costs, it can be divided into foundation costs and ongoing costs. This means that the APR includes costs for both lump sums, as well as for amounts / fees paid over the entire loan period.
Different loan providers may call the running costs different things, but most often these are account fees, monthly fees, administration fees, PBS fees, etc. The APR is thus calculated on the basis of not only the interest rate but also the size of the loan, as well as the timing and frequency. of the installments. The actual way in which the OPP is calculated is reasonably complicated.
If you want to delve deeper into this, you can read about it here. There is no doubt that the APR is the best and most objective loan comparison option borrowers have access to.
MOL skews the advantage of quick loans
However, the problem with the APR is that it compares loans on an annual basis. This makes good sense in most cases, precisely because most of the loans offered have a maturity of more than 1 year. It just doesn’t make good sense for quick loans, which have a maturity of 45 days or less.
The benefits of these short-term loans are skewed precisely because the cost of using the APR is calculated for a period of one year, but a quick loan is repaid in less time. It is a little like announcing the price of a rental car on an annual basis rather than on a daily basis, for which these cars are typically rented out.
It is misleading to the consumer.
It is clear that you will question the price of a rental car if it is calculated to cost you $ 109,500 annually ($ 300 x 365 days) – when you only need it for one day – and it will cost you $ 300. The same logic applies to MOL on quick loans.
You see towering MOLs precisely because the cost is calculated on an annual basis, rather than on the basis of the actual loan period. This is a problem because the APR has become a standard in loan comparisons and is therefore also used uncritically on ultra short loans.
The example above is actually taken from a report like PricewaterhouseCoopers (PwC) – one of the world’s most recognized auditing and consulting companies, made in 2011. Here, they indicate that they believe there is a misconduct with the OPP on very short loans .
“In the case of payday lending an APR is fundamentally misleading.
Annualizing the interest cost of a product that is offered only as a short-term facility confuses the purpose of the loan and misrepresents the true cost. It’s similar to suggesting that the typical annual The cost of a rental car might be close to £ 15,000, rather than a daily rate of £ 40. The total charge for credit may be a more beneficial measure for the consumer in this instance. “
The moral of this blog post is that you cannot use MOL as a benchmark for short-term loans. As PricewaterhouseCoopers, we here at Bradamante also believe that the cost of this type of loan should be expressed as an amount in dollars and ears, rather than an annual cost percentage.
With our new loan calculator you can just get the price of the loan in kroner and penny. The loan calculator automatically calculates repayment, monthly payment, credit costs and APR – which you can disregard if the loan term is less than 12 months.