What is the rate of wear and tear?
Also known as “wear threshold”, the usury rate is the maximum annual effective rate that banks are authorized to charge when they grant a loan to an individual. In short, it is the “all-inclusive” interest rate of a loan, which means that it includes:
- the nominal rate which is the rate actually paid;
- application fee ;
- fees owed to intermediaries who participated in granting the loan, such as the broker;
- insurance and mandatory warranty costs
If when subscribing to a loan, it is offered to a Annual Percentage Rate (APR) higher than that defined by the Bank of France, it is considered usurious, which is prohibited by law. You should know that the usury rate is regulated by article L314-6 of the Consumer Code and that all types of loans are concerned.
What is the usury rate used for?
Its primary reason for being is consumer protection. In fact, it makes it possible to establish a safeguard that prevents ill-intentioned lending organizations from lending at excessively high rates which could put the borrower in a difficult financial situation.
How is the wear rate calculated?
The rate of wear is not chosen at random. Each quarter, the Banque de France collects from lending institutions and financing companies the APRs they charged during the quarter for each loan category based on the effective rate. From there, it calculates the average, again for each loan category, and adds a third to the results obtained to obtain the usury rate for the following quarter.
The concept “each loan category” is important since the rates charged by lending institutions vary depending on the loan, its duration and its amount, without forgetting that the rates for real estate loans are different from those for consumer loans.
In the same vein, you should know that real estate loans and loans for works whose amount exceeds €75,000 are classified into 5 categories including:
- bridging loans;
- variable rate loans;
- fixed rate loans with a duration of less than 10 years;
- fixed rate loans with a duration of between 10 and 20 years;
- fixed rate loans with a duration of more than 20 years.
The wear rate is regularly updated
At the end of each quarter, the usury rate is published in the Official journal by the Banque de France and is valid for the following quarter. In the section “Rates and prices”in the category ” Statistics “ of this Official Journal, it is thus possible to find the details of the usury rate for each loan category. These details are valid for the entire following quarter.
Since February 1, 2023, the inflationary context in which we find ourselves requires a monthly review. In such a context, this mode of operation makes it possible to unblock the situation for real estate borrowers.
Why is the usury rate set by the Bank of France?
This is not by chance either. The Banque de France is, in fact, the central bank of France. Its missions are financial, economic and monetary. It plays a role of protection of households against over-indebtedness. In addition, it integrates the Prudential Control and Resolution Authority which monitors the activity of banks and insurance companies.
Sanctions for non-compliance with the usury rate
The rate of wear must be scrupulously respected by credit organizations. Article L341-50 of the Consumer Code thus provides for sanctions in the event of exceeding this rate. Establishments that do not respect it are liable to a fine of €300,000 and 2 years of imprisonment. The conviction may also include a ban on certain professional activities for a period of up to 5 years.
Current wear rates
From the October 1, 2023the usury rates set by the Bank of France for real estate loans are as follows:
- For a fixed rate loan with a duration of less than 10 years, the usury rate is 4.31%.
- For a fixed rate loan with a duration of between 10 and 20 years, the usury rate is 5.55%.
- For a fixed rate loan with a duration of more than 20 years or more, the usury rate is 5.8%.
- For a variable rate loan, the usury rate is 5.4%.
- For a bridging loan, the usury rate is 5.79%.