What the nominal rate tells you
The nominal rate is the price of borrowing the principal, expressed per year. On a €15,000 loan at 6.7 %, it explains how the €295 monthly instalment is calculated over five years. It says nothing about arrangement fees, monthly account fees or payment protection insurance added to the contract.
Lenders advertise the nominal rate because it is the smaller number. It is accurate, and it is incomplete.
What APR adds
The annual percentage rate folds every mandatory cost into one figure, calculated the same way by every lender in the EU under the Consumer Credit Directive. That is what makes it comparable.
Fees
Arrangement fees, account-keeping fees and invoicing fees are all included. A €450 arrangement fee on a €15,000 loan adds roughly 1.2 percentage points to the APR while leaving the nominal rate untouched.
Insurance
Payment protection insurance is included only when it is a condition of the loan. If it is optional, it stays out — so check whether "optional" is actually optional in the application flow.
Representative example
€15,000 over 5 years at 6.7 % nominal interest → €295/month, total repayable €17,700, APR 6.92 %.
Two loans, same rate, different cost
The table below compares two illustrative offers. Both quote 6.7 % nominal. Only one of them is €450 more expensive.
