Sunday, May 26, 2019

Calculation of Bank Interest on the Loan

Anatocism and usury are two prohibited practices, which make the debtor pay excessive interest on a loan such as a loan or a mortgage. These are operations to be monitored carefully, because they put the consumer in a difficult situation: first, heavy interests are paid, but it is also difficult, without proper information, to know if you are a victim of one of these incorrect practices. Wear and anatocism are however two different phenomena, which we will describe clearly.

Usury involves the application by the creditor, very often a bank, of usurious interest rates, that is too burdensome for the pockets of the debtor and for the characteristics of the loan. To understand if the interests are excessive, we must refer to the survey tables compiled by the Bank of Italy and published every three months. It is the Bank of Italy that has to supervise the application of usurious interests: this control is carried out through the detection of the TEGM, the average overall effective rate applied in each category of credit products (for example mortgages).

Once the TEGM has been established, we can understand if we are in the presence of wear by adding a quarter of the value of the same TEGM and further increasing the result of another four points. If the interest rate applied to the loan exceeds this wear threshold, then it is a usurious interest. Wear can also lead to penal consequences for those who apply it and must always be kept under control.


Even bank anatocism causes the payment of excessive interests, but in a different way: this practice could be summarized as the payment of “interest on other interests” . In practice, the interest rate fixed on a loan is entirely lawful, but the method of calculating compound capitalization leads the client to pay more interest than is due. In fact, instead of calculating the interest on the loaned capital, as it should be, the bank also takes into consideration the interest already paid with the previous installments. In this way the base on which the rate is calculated and consequently also the debt to be repaid grows.

Anatocism is perhaps more difficult to identify than usury, because in appearance the loan contract is fully regular. The irregularity is noted instead in the payment of the installments, which could become heavier without reason. For this reason, anatocism is an offense and is prohibited by the civil code.

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