The interest rate corresponds to a percentage contractually fixed over a period of one year by the lender for his remuneration.
The interest rate, a pillar of the economy
Commonly used when establishing a contract for credit, the interest rate constitutes a pillar of the economy and financial markets. It can be fixed or variable. Its method of calculation for the remuneration the praetor, despite standardization of use due to globalization, is quite free too.
Determination of the interest rate
The lender is free to set the interest rate that he wants to charge in his contracts. However, in most countries, there are conventions. In France in particular, interest rates are capped by the Banque de France, which determines each quarter the rates of wear by product.
When establishing acredit contract offer, the imputed rate is determined according to three parameters:
• Type of credit granted: revolving credit, bank loan, real estate, assigned loan, etc.
• Duration of the loan and the amount of the maturities provided for in the terms of repayment of principal and interest.
• The risk taken by the praetor.
The main types of interest rates
Interest rates have a classification according to their nature, their duration of reference or their legal use.
Depending on the nature of the rate:
• Fixed rate: invariable over the entire duration of the loan.
• Floating rate: It can be indexed to inflation or a benchmark of the foreign exchange market.
According to the reference period:
• Face or nominal rate: this is the basis for calculating loan interest.
• Actuarial rate: In finance, rate of return on an investment.
According to the legal usage:
• Total Effective Rate (APR): This is the real cost of a home loan.
• Annual percentage rate of charge (APR): defined for consumer credit, it includes all costs, including interest related to a loan.
The purpose of the GET and GEPA indicators is to inform consumers about the true costs of a credit in full transparency and to allow them to compare different offers from credit institutions.