A1 REAL ESTATE

Real estate credit: what is the wear rate?

Return
Share the article
|
Real estate credit: what is the wear rate?
The wear or usury rate is the Annual Effective Rate (APR) upon which banks and credit institutions cannot grant a loan. 

The wear rate is also called the “wear threshold” and is recalculated monthly by the Banque de France (Central Bank of France) as governed by Article L314-6 of the Consumer Code.

The APRC includes: 
  • The base interest rate
  • Bank charges
  • Application fees
  • The amount of the borrower's insurance premium

Moreover, the usury rate concerns all types of loans, including: 
  • Fixed-rate mortgages (4.24% for fixed-rate loans over 20 years or more)
  • Variable rate mortgages
  • Consumer credit
  • Bridge loans
  • Revolving credits
  • Personal loans
  • Car loans
  • Work credits
  • Bank overdrafts

What is the difference between the wear rate and the debt ratio?

As already mentioned, the wear rate is the interest rate charged on a loan that has exceeded the maximum interest rate set by Banque de France (Central Bank of France). The debt ratio, on the other hand, is the ratio between income and monthly payments to be repaid for a mortgage. This is the share that a borrower can repay every month, depending on their income.

How do you know that you exceed the wear threshold?

As the Bank of France reassesses the rates monthly, it is possible to consult them directly on their official website. Go to the “Statistics” category and click on the “Rates and Prices” section. 

Additionally, it's easier for you to avoid exceeding the wear rate by outsourcing borrower insurance

Can we bypass the wear rate?

You can bypass the wear rate by:
  • Choosing an external borrower insurance (essential to subscribe to a mortgage. Thanks to the Lagarde Law,  you can engage with a specialized insurance company different from the one offered by the bank)
  • Negotiate the monthly loan payments with the financial institution (by extending the duration of the loan, the APR is reduced)
  • Negotiate your mortgage fees
  • Perform mortgage simulations with competing banks or credit institutions

What is the risk of an organization that practices the rate of wear?

A loan is considered usurious when its annual percentage rate of charge (APR) is higher than the wear rate. 

Credit institutions that accept loan applications with an APR higher than the wear rate incur criminal and civil penalties

They risk up to 2 years in prison and a fine of € 300,000.00 according to Article L341-50 of the Consumer Code.

These penalties may be followed by a ban on practice for a minimum of 5 years.

The wear rate protects consumers from potential abuse by banks and credit institutions. 

It excludes proposals for loans at excessively high rates offered by banks and thus makes it possible to protect consumers from the risk of over-indebtedness.

Among other things, it prevents households and businesses from falling into difficult financial situations and helps them maintain a healthy credit market.

How is the wear rate calculated?

To calculate the wear rate, the Bank of France establishes an average of the rates charged for a category of loan and increases it by one-third. 

The Bank of France also conducts a survey of banks, finance companies, and credit institutions. For each category of loan, the institution collects a sample of the applied APRs. 

The Bank of France also takes into consideration: 
  • The average borrowing period
  • Loan categories
  • The amount borrowed by households

With regard to real estate loans, the usury threshold is defined for fixed rates over 3 different time spans: 
  • A first threshold of fewer than 10 years
  • A threshold between 10 and 20 years 
  • A threshold of more than 20 years
Ce qu’il faut retenir :
  • The wear rate is the maximum rate that banks can offer in a loan. 
  • It's intended to protect consumers from potential financial abuse and regulate the credit market.
  • The Bank of France sets the wear rate in France.
  • In order to calculate and fix the rate of wear, the Bank of France establishes an average of the rates charged within a category of loan and increases it by one-third. 
  • It's possible to bypass the rate of wear by: 
  • Choosing an external borrower insurance
  • Negotiating the monthly loan payments with the bank
  • Negotiating the mortgage fees
  • Performing mortgage simulations with multiple credit institutions.

You want to
to sell in Paris or its surroundings ?

Contactez-nous

WANT TO FOLLOW US
on social networks?

RESPECTING YOUR PRIVACY IS A PRIORITY FOR US
We use cookies to provide you with an optimal experience and relevant communication on our site. Thanks to these technologies, we can offer you content related to your interests. They also allow us to improve the quality of our services and the user-friendliness of our website. We will only use personal data for which you have given your consent. You can modify it at any time via the ″Manage cookies″ section at the bottom of our site, with the exception of cookies essential to its operation. For more information about your personal data, please see .
Accept everything
Refuse all
Personalize