Credit: What You Need to Know About the Rate of Wear
Also called maximum annual percentage rate. Its fixing is the responsibility of the FR Bank, which does so on a quarterly basis and with a well-defined justification. All financial institutions such as banks and credit institutions must refer to it.
The threshold of the wear rate
The annual percentage rate of charge (APR) is the rate that designates the entire rate of interest on the credit and the expenses required to obtain it, such as the application fees, insurance, mandatory guarantees, etc. While the rate of attrition is the cap on an APR that financial institutions can offer to give a loan. A usurious loan is a loan that is granted at a rate higher than that imposed by the FR Bank. To determine this rate is among the works of the FR Bank every three months. Financial institutions can then consult it in the Official Journal. Banks and credit institutions must meet this threshold to provide credit to their clients. Failure to do so is punishable by two years imprisonment and / or a fine of up to £ 45,000. This limit is put in place to defend, first of all, the abuses against debtors, but also to prevent an excessively high interest rate. The attrition rate also prevents borrowers from over-indebtedness.
The calculation of the wear rate
In order to set and communicate the rate of attrition on a quarterly basis, the FR Bank must carefully examine all the APRs of all credit institutions. It is from this study that it will draw the average rate. The latter will be fixed by raising its value by one third. At the end of each quarter, a press release will be published in the Official Journal to inform the main players. The published rate at the end of the quarter will be valid for the next 3 months. The rate of wear is calculated differently depending on the nature of the loan. The attrition rate of a consumer credit is different from that of a home loan.
For example, at the end of the third quarter of 2017, the average rate observed after the screening of each rate was 15.66% for a consumer loan of less than or equal to £ 3,000. So for the first 3 months of 2018, the wear rate was imposed at 20.88%. Therefore, no consumer credit can be granted beyond this rate during this period. Breaking this threshold is considered a punishable offense.