TAE and TIN: what each measures, and which to compare

One is a price, the other is a measure

The TIN is the rate the lender applies to the capital to work out each instalment. Spanish law does not call it that: article 6.e) of Ley 16/2011 defines it as the tipo deudor, "the interest rate expressed as a fixed or variable percentage applied on an annual basis to the amount of credit drawn down".²

The asymmetry between the two acronyms is measurable, and it explains the rest of this page. In the consolidated text of Ley 16/2011 the phrase "tipo deudor" appears 44 times and the acronym TIN not once. In Ley 5/2019 on mortgage credit, 38 times and never. In Banco de España Circular 5/2012, twelve times, plus seven mentions of "tipo de interés nominal", and again not a single TIN. The acronym TAE, by contrast, is written 73 times in the Circular and 50 times in Ley 5/2019.¹³

Put plainly: the TIN is a commercial shorthand for a term of the contract, and the TAE is a regulated quantity. Every lender decides its own TIN; no lender decides how to compute its TAE, because annex 7 of the Circular imposes the formula.¹

Two things separate the TAE from the TIN, and most explanations count one

The first is compounding frequency. With monthly settlements, each month's interest earns interest in the following ones within the same year, so that

TAE = (1 + TIN / k)^k − 1, with k settlements per year

and a 6% TIN with monthly instalments is equivalent to 6.1678% effective.

The second is fees. And here is the detail none of the pages competing for this question mentions: the first part, on its own, has a name. The Banco de España calls it the TEDR, Tipo Efectivo Definición Restringida, and defines it as "the interest-rate component of the Tasa Anual Equivalente, therefore excluding all fees and charges".⁴

That gives three figures, not two, and ordering them settles the confusion at once:

The conversion in our TAE-TIN calculator is the middle row: it returns the TEDR, not the advertised TAE, because the fee component depends on one specific offer.

What goes into the TAE and what stays out

This is the legal part, and it is where a generic answer fails. The total cost of credit is defined in article 6.a) of Ley 16/2011; what is excluded from it, in article 32.2; and for a mortgage, article 4.12 of Ley 5/2019 starts from that same definition and corrects it in two places.²³

Three readings worth holding on to:

The notary is excluded by name. Article 6.a) lists "all costs, including interest, commissions, taxes and any other kind of charge… with the exception of notary fees". It is the charge everyone cites as the archetypal hidden cost, and it is precisely the one the law leaves out of the calculation.²

On a mortgage you no longer pay them anyway. Since Ley 5/2019 the lender bears the notary's fees for the loan deed, the gestoría and registration of the security at the Land Registry; what is left for the borrower is the valuation.³ And the valuation is inside the TAE, because article 4.12 includes it expressly "where that valuation is necessary to obtain the credit".

What decides whether insurance counts is who imposes it. The thirteenth rule includes credit-protection insurance premiums "provided that the institution imposes the taking out of that insurance as a condition of granting the loan or credit".¹ A policy you choose yourself is outside; the same policy demanded to reach the advertised rate is inside.

A worked example with real numbers: one fee, two terms

A personal loan of €10,000 at a 6% TIN, monthly instalments and a 2% arrangement fee (€200 upfront). The figures come from solving the annex 7 equation over the operation's real cash flows.¹

Same lender, same rate, same fee, and the TAE moves more than three points between the two. The reason is arithmetic: €200 spread over five years weighs five times less per year than €200 spread over one.

Which gives the practical rule almost nobody states: the TAE compares offers, not terms. Putting a 10.25% TAE next to a 7.06% one means nothing if one deal runs for a year and the other for five. Match the amount and the term first, then compare.

The case that proves it: a 0% TIN and a 27.9% TAE

"Interest-free" financing of €1,000 with a 4% arrangement fee:

• over twelve months, the TEDR is 0% and the TAE is 7.875%, published as 7.9%;
• over three months, the TEDR is still 0% and the TAE is 27.8607%, published as 27.9%.

The interest rate genuinely is zero: there is not one euro of interest in the schedule. What is not zero is the cost, and the only figure in the advert capable of saying so is the TAE.

On a variable-rate mortgage the TAE does not claim to be the cost

Paragraph 5 of the thirteenth rule requires the TAE of a variable-rate operation to be computed assuming the reference index stays for ever at its last known level, requires the label TAE to be replaced by TAEVariable, and requires a verbatim warning that it will change with every rate review. The rule adds that in those cases the figure "shall have informational effects only".¹ If the contract caps the variation, those caps do have to go into the calculation.

There is a second effect, easier to see with numbers. A €150,000 mortgage at a 3% TIN over 25 years, with a €350 valuation:

• with the valuation alone, the TAE is 3.0635% against a TEDR of 3.0416%: +0.0219 points;
• if the lender also imposes €35 a month of insurance, the TAE rises to 3.5198%: +0.4782 points.

The €35 a month moves the TAE twenty-two times more than the €350 paid once. On a long loan, what the TAE really captures is not the closing costs but the tied products paid every month for twenty-five years.

On a deposit the TAE is gross, and assumes you leave the money alone

On the savings side the mechanics are identical but in your favour, with three rules of their own in paragraph 8 of the thirteenth rule:¹

• 8.1: it is computed gross. The figure must use "the gross amount of the interest settled, without taking into account tax withheld from the recipient". The headline TAE is not what reaches the account; the arithmetic with withholding is on what compound interest is.
• 8.4: a sub-year deposit with automatic rollover is published assuming "the balance remains for a full year" at both rates. The TAE of a six-month deposit already has a reinvestment assumption inside it.
• 8.3: an account with a promotional rate and a different one afterwards is published the same way, with both rates over a full year. That is why a welcome TAE never matches the rate in the leaflet.

The Banco de España puts it plainly on its own portal: the calculation "is based on compound interest and on the assumption that the interest obtained is reinvested at the same rate".⁵

An overdraft is calculated a different way

If you have ever seen a three-figure TAE on a current-account statement, it is not a mistake. For unauthorised overdrafts, paragraph 7.e) of the thirteenth rule requires two TAEs to be added: one for the interest, computed on the average debit balance over the period, and one for the fees, computed on the largest debit balance that occurred and assuming that balance was held for the whole period.¹ A flat fee on a two-day overdraft, annualised that way, produces enormous percentages, and they are correct.

Two pieces of small print in annex 7

The law only requires one decimal place. Observation d) asks for "a precision of at least one decimal place", so 7.0621% is published as 7.1% and two offers less than a tenth of a point apart will show the same figure in the advert.¹

A month lasts 30.41666 days. Observation c) fixes the standardised month at 365/12 "irrespective of whether the year is a leap year". That is why two lenders computing the same loan's TAE properly land on exactly the same number, with no argument about calendars.¹

What neither figure tells you

Both numbers look at the operation from the beginning. If you are eight years into a mortgage and thinking about switching, what matters is not the TAE you signed but the remaining effective cost (CER), which paragraph 3 of the thirteenth rule defines with the same formula but "taking into account exclusively the time left until maturity… and the cost or yield items still to be paid or received".¹

It is a figure almost nobody asks for and the lender has to provide: in a binding subrogation offer, paragraph 7.c) additionally requires the cancellation fee of the loan being replaced to go into the TAE, and requires the borrower to be told the remaining effective cost of the loan being left behind.¹ Without that, comparing the mortgage you have with the one on offer is not a comparison at all.

If you want to move from your offer's TIN to the effective rate, the TAE-TIN calculator converts in both directions, and the Banco de España also publishes its own official loan TAE simulator.⁶