The rate advertised on a loan is almost never the rate you actually pay. That advertised number is the TAN, the nominal annual rate, and it only covers interest on the amount borrowed. The real cost of the loan is the TAEG, and it is often meaningfully higher.
What TAN actually measures
TAN stands for tasso annuo nominale, the nominal annual rate. It tells you the interest rate applied to the capital you borrow, and nothing else. It does not include administration fees, mandatory insurance policies, or other charges the lender is allowed to add on top. A loan advertised at a 5% TAN can end up costing considerably more once every fee is added in.
What TAEG actually measures
TAEG stands for tasso annuo effettivo globale, the equivalent of an APR, the annual percentage rate. It bundles the nominal interest together with fees, insurance and other mandatory costs into a single number that represents the true annual cost of the loan. By law, lenders in Italy must disclose the TAEG alongside the TAN, precisely so borrowers can compare offers on equal footing.
The gap between TAN and TAEG can be small on a simple loan with no extras, or large on a loan bundled with insurance products and origination fees. That gap is exactly what determines whether an advertised low rate is actually a good deal.
Why this matters just as much for a car loan as a mortgage
The mechanics of TAN and TAEG apply to any instalment loan, whether it is a mortgage, a personal loan, or car financing offered directly through a dealership. Dealership financing often advertises an attractive TAN to make the deal look appealing, while the TAEG, once insurance and fees are included, tells a different story. Comparing a dealership offer against a personal loan from a bank using TAEG, not TAN, is the only fair comparison.
How term length changes the total cost
Because loan terms are shorter than mortgages, often between 2 and 7 years, the monthly payment is more sensitive to both the rate and the term you choose. A shorter term means a higher monthly payment but a lower total interest cost. A longer term lowers the monthly payment but increases the total interest paid over the life of the loan, sometimes substantially.
A concrete example
Take a 15,000 euro car loan advertised at a 4.9% TAN over 5 years. Once a 300 euro administration fee and a mandatory 600 euro insurance policy are included, the TAEG can rise to around 6.3%. That difference of roughly 1.4 percentage points between TAN and TAEG adds up to hundreds of euros in real cost that the headline rate never showed. Comparing that same loan against a second offer with a 5.4% TAN but no extra fees might actually reveal the second offer as the cheaper one overall, despite its higher advertised rate.
How to compare loan offers correctly
The only reliable way to compare two loan offers is to look at the TAEG of each, side by side, along with the total amount repaid over the full term. A loan simulator does this automatically: enter the amount, rate, term and fees of any loan, personal or car, and see the real monthly payment and the real total cost, so you are comparing offers on the same basis every time.