INPROFORUM 2015

The Annual Percentage Rate - Complexness and Ambiguity
Pavel Tlustý, Tomáš Mrkvička, Marek Šulista

Language: en
Last modified: 2016-01-07

Abstract


The annual percentage rate should enable consumers to better evaluate the favourability of a loan and indicates the percentage of the loan which has to be redeemed within one year, considering instalments, maintenance and other charges that go with the loan. In addition, loan providers are obliged, according to the Czech law, to present this rate with their consumer credit offers. This paper outlines the calculation of the annual percentage rate and points out its ambiguity illustrated with concrete examples which depict its weakness and inconsistencies which may cause a dispute between consumers, loan providers and state inspection authorities. All the presented deficiencies lead to the conclusion that the annual percentage rate is not a suitable tool which should be used by financial institutions to help consumers to evaluate the favourability of a loan.


Keywords


annual percentage rate, loan

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