Nominal interest rate p.a. is the interest rate that is applicable to the loan, expressed as a percentage and calculated on an annual basis. It indicates how much interest is charged on the borrowed amount, but does not include any additional transaction costs or fees. The annual percentage rate describes the loan's total cost. In addition to interest, it includes all additional costs and fees that the customer must pay. The annual percentage rate is calculated by adding together all interest and fees and dividing them by the total repayments. It therefore takes into account the actual costs incurred over the entire term of the loan. In contrast, the nominal interest rate only indicates the pure interest rate, without including additional costs. The annual percentage rate is higher than the nominal interest rate, especially for monthly installment payments, as it also takes other costs into account. It serves as an important indicator for assessing the actual financing costs: The lower the effective annual percentage rate, the cheaper the loan overall.
