Loans

Answer our five questions on loans to test your knowledge of financing: learn about overdrafts, the difference between the TAN and the APR, when you can apply for a loan against one fifth of your salary or pension, and how mortgage instalments may change.

What is an overdraft?

Correct answer D. A form of financing.

This is the sum that a bank, at the customer's request, makes available to the customer over and above the available balance. The contract may provide for the payment of interest on the sums used as well as an all-inclusive fee.

To choose between two or more financing proposals, you should:

Correct answer D. Compare the APR (Annual Percentage Rate, Tasso annuo effettivo globale, TAEG in Italian).

The Annual Percentage Rate (APR) is the main transparency tool in consumer credit agreements. It's a harmonised index at European level and therefore makes it possible to easily and quickly compare all loans, even those offered by foreign operators on the Italian market.

Expressed as percentage of the sum granted and on an annual basis, it includes all costs and is therefore particularly useful for understanding which loan may be the most suitable for your needs and economic possibilities.

Suppose you want to take out a mortgage that involves the payment of instalments all of the same amount. For the same loan principal amount and interest rate:

Correct answer A. The shorter the the loan, the bigger the instalments and the lower the total interest paid.

A monthly instalment consists of capital plus interest. For the same loan principal amount and interest rate, the shorter the mortgage, the bigger the instalments, but the lower the amount due in interest.

Let's take as an example a mortgage amounting to €150,000, with a fixed rate of 2 per cent. If the duration is 20 years, the monthly instalment is €758.83 and the total interest paid is about 32,000 euro. If the duration is 40 years, the monthly instalment is lower (€454.24) but the total interest paid is higher (almost €63,000).

Suppose you lend €25 to your friend one evening. The next day your friend gives you back exactly €25. Your friend paid you 1% interest on the amount borrowed.

Correct answer B. False.

The interest rate is the price of money. It's expressed as a percentage and represents the cost incurred by someone using a sum of money over a certain period of time. In the example situation, your friend has paid you back the same amount they borrowed, thus paying no interest.

You can apply for a 'loan against one fifth of salary/pension' if…

Correct answer B. You are employed (whether in the public or private sector), or if you are retired.

The 'loan against one fifth of salary/pension' is a loan that you can be granted if you are employed (whether in the public or private sector), or retired. It's called this because the loan instalment is deducted directly from your salary or pension, and can't exceed one fifth, i.e. 20 per cent, of the total sum you receive each month.

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