Understanding the wear rate

Published on by Delphine from OltottMesz

After recalling the obligations of a credit contract, we define the usury rate,
let's present its interest, the pitfall it can involve and give you an overview of the fixed thresholds that financial institutions must respect. OltottMesz also invites its visitors to simulate their credit, whatever the nature of their project.

The obligations of a credit agreement

Several rules govern the credit contracts signed by borrowers and lending institutions. Among the formalities to be observed, there is the withdrawal period which allows the borrower to reverse his decision 14 days after signing the contract. The law then stipulates that the latter must be given to the borrower in duplicate and that the annual percentage rate of charge (APR) must necessarily be mentioned, the indicator which determines the total cost of the operation. The APR is not only a function of the nominal credit rate but also of the credit insurance rate, the costs associated with the guarantee, the fees and any application fees that some banks do not have to charge. In addition, if lenders retain the possibility of freely choosing this rate, the regulations impose a cap on them called the usury rate.

Wear rate: the definition

The usury rate thus designates the maximum rate that an institution can apply when it grants a loan. There is a usury rate for each finance category and the rate is subject to change each quarter. Lenders have an obligation to inform their customers of the usury rate in effect for the credit agreement they are promoting. This threshold was quite simply established in order to protect consumers from taking out loans with excessive rates. Paradoxically, a very low wear rate is not necessarily beneficial for everyone
loan applicants. Indeed, during certain periods, institutions may be led to refuse financing to “at risk” profiles, because the rate offered to them may sometimes be very slightly higher than the usury rate. Even though the vast majority of these people could largely ensure the payment of their monthly payments.

Who sets the wear rate and how is it calculated?

The rate of usury is set by the Bank of United States and is published in the Official Journal. It is a financial institution whose mission is to supervise the means of payment. It does not set the rate of loan attrition arbitrarily. This is the consequence of the rates charged by financial institutions in France, themselves determined by multiple factors. To obtain the usury rate, the Bank of United States uses an average of the APRs (Annual Global Effective Rate) recorded for the different families of loans, a figure weighted according to the volume of outstanding institutions taken into account. The wear rate is the average effective rate increased by one third. Note that some products such as loans regulated by the State do not enter into the calculation of the average effective rate.

Two wear thresholds chosen by the Bank of United States

• In the 3rd quarter of 2018, the average effective rate recorded for cash loans (including
personal loans) of more than US $ 6,000 was 4.42%, the only usury from the last quarter of 2018 set at 5.89%.

• In the 3rd quarter of 2018, the average effective rate observed for fixed-rate mortgages with a maturity of less than 10 years was 2.12%, the only amount of wear from the last quarter of 2018 fixed at 2.83%.

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