Directive 98/7/EC of the European Parliament and of the Council of 16 February 1998 amending Directive 87/102/EEC for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit
Date: 1998-02-16
Institutions: Council of the European Union, European Parliament
Subjects: approximation of laws, consumer credit, interest, loan

1.4.98

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L 101/17

DIRECTIVE  98/7/EC  OF  THE  EUROPEAN  PARLIAMENT  AND  OF  THE  COUNCIL

of  16  February  1998

amending  Directive  87/102/EEC  for  the  approximation  of  the  laws,  regulations  and
administrative  provisions  of  the  Member  States  concerning  consumer  credit

THE  EUROPEAN  PARLIAMENT  AND  THE  COUNCIL  OF
THE  EUROPEAN  UNION,

Having  regard  to  the  Treaty  establishing  the  European
Community,  and  in  particular  Article  100a  thereof,

Having  regard  to  the  proposal  of  the  Commission (1),

Having regard to the opinion of the Economic and Social
Committee (2),

Acting  in  accordance  with  the  procedure  laid  down  in
Article  189b  of  the  Treaty (3),

it 

is  desirable, 

Whereas 
in  order  to  promote  the
establishment and functioning of the internal market and
to  ensure  that  consumers  benefit  from  a  high  level  of
protection, that a single method of calculating the annual
percentage  rate  of  charge  for  consumer  credit  should  be
used  throughout  the  Community;

Whereas  Article  5  of  Directive  87/102/EEC (4)  provides
for the introduction of a Community method or methods
of  calculating  the  annual  percentage  rate  of  charge;

Whereas,  in  order  to  introduce  this  single  method,  it  is
desirable  to  draw  up  a  single  mathematical  formula  for
calculating  the  annual  percentage  rate  of  charge  and  for
determining  the  credit  cost  items  to  be  used  in  the
calculation  by  indicating  those  costs  which  must  not  be
taken  into  account;

Whereas  Annex  II  of  Directive  87/102/EEC  introduced  a
mathematical  formula  for  the  calculation  of  the  annual
percentage  rate  of  charge  and  Article  1a(2)  of  that
Directive  provided  for  the  charges  to  be  excluded  from
the  calculation  of  the  ‘total  cost  of  credit  to  the
consumer’;

(1) OJ  C  235,  13.8.1996,  p.  8  and
OJ  C  137,  3.5.1997,  p.  9.
(2) OJ  C  30,  30.1.1997,  p.  94.
(3) Opinion  of  the  European  Parliament  of  20  February  1997
(OJ  C  85,  17.3.1997,  p.  108),  Council  Common  Position  of
7 July 1997 (OJ C 284, 19.9.1997, p. 1) and Decision of the
European  Parliament  of  19  November  1997.  Council
Decision  of  18  December  1997.

(4) OJ  L  42,  12.2.1987,  p.  48.  Directive  as  amended  by

Directive  90/88/EEC  (OJ  L  61,  10.3.1990,  p.  14).

Whereas  during  a  transitional  period  of  three  years  from
1  January  1993,  Member  States  which  prior  to  1  March
1990  applied  laws  which  permitted  the  use  of  another
mathematical 
the  annual
percentage  rate  of  charge,  were  permitted  to  continue  to
apply  such  laws;

for  calculating 

formula 

Whereas  the  Commission  has  submitted  a  Report  to
the  Council  which  makes  it  possible,  in  the  light  of
experience,  to  apply  a  single  Community  mathematical
formula  for  calculating  the  annual  percentage  rate  of
charge;

Whereas,  since  no  Member  State  has  made  use  of
Article  1a(3)  of  Directive  87/102/EEC  by  which  certain
costs  were  excluded  from  the  calculation  of  the  annual
percentage rate of charge in certain Member States, it has
become  obsolete;

Whereas  accuracy  to  at  least  one  decimal  place  is
necessary;

Whereas  a  year  is  presumed  to  have  365  days  or  365,25
days  or  (for  leap  years)  366  days,  52  weeks  or  12  equal
months;  whereas  an  equal  month  is  presumed  to  have
30,41666  days;

Whereas  it  is  desirable  that  consumers  should  be  able  to
recognize  the  terms  used  different  Member  States  to
indicate  the  ‘annual  percentage  rate  of  charge’;

Whereas it is appropriate to study without delay to what
extent  a  further  degree  of  harmonization  of  the  cost
elements  of  consumer  credit  is  necessary  in  order  to  put
the  European  consumer  in  a  position  to  make  a  better
comparison  between  the  actual  percentage  rates  of
charges  offered  by  institutions  in  the  various  Member
States,  thereby  ensuring  harmonious  functioning  of  the
internal  market,

HAVE  ADOPTED  THIS  DIRECTIVE:

Article  1

Directive  87/102/EEC  shall  be  amneded  as  follows:

(a) Article  1a(1)(a)  shall  be  replaced  by  the  following:

— in  the  Greek  language  version  of  the  Directive:

‘Τ(cid:239)  (cid:243)υν(cid:239)λØκ(cid:222)  (cid:229)(cid:244)η(cid:139) (cid:243)Ø(cid:239)  (cid:240)ρÆγµÆ(cid:244)Øκ(cid:222)  (cid:240)(cid:239)(cid:243)(cid:239)(cid:243)(cid:244)(cid:222)  (cid:229)(cid:240)Ø-
(cid:226)(cid:192)ρυν(cid:243)ης  (cid:240)(cid:239)υ  (cid:229)ŒØ(cid:243)ω(cid:139) ν(cid:229)Ø  (cid:243)(cid:229)  (cid:229)(cid:244)η(cid:139) (cid:243)ØÆ  (cid:226)(cid:192)(cid:243)η  (cid:244)Øς  (cid:240)Æρ(cid:239)υ(cid:139) -

L 101/18

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1.4.98

(cid:243)(cid:229)ς  ÆŒ(cid:221)(cid:229)ς  (cid:244)(cid:239)υ  (cid:243)υν(cid:222)λ(cid:239)υ  (cid:244)ων  (cid:244)ρ(cid:229)ł(cid:239)υ(cid:243)ω(cid:139) ν  η(cid:139) µ(cid:229)λλ(cid:239)ν(cid:244)Ø-
κω(cid:139) ν  υ(cid:240)(cid:239)łρ(cid:229)ω(cid:139) (cid:243)(cid:229)ων  ((cid:228)Æν(cid:229)(cid:221)ων,  (cid:229)Œ(cid:239)(cid:230)λη(cid:139) (cid:243)(cid:229)ων  κÆØ  (cid:229)(cid:240)Ø-
(cid:226)Æρυ(cid:139) ν(cid:243)(cid:229)ων) (cid:240)(cid:239)υ (cid:219)ł(cid:239)υν ÆνÆλη(cid:230)θ(cid:229)(cid:221) Æ(cid:240)(cid:222) (cid:244)(cid:239) (cid:228)Æν(cid:229)Ø(cid:243)(cid:244)η(cid:139)
κÆØ  (cid:244)(cid:239)  ((cid:228)Æν(cid:229)Øœ(cid:222)µ(cid:229)ν(cid:239))  κÆ(cid:244)ÆνÆλω(cid:244)η(cid:139) ,  υ(cid:240)(cid:239)λ(cid:239)γ(cid:221)œ(cid:229)(cid:244)ÆØ
(cid:243)υ(cid:139) µ(cid:230)ωνÆ  µ(cid:229)  (cid:244)(cid:239)  µÆθηµÆ(cid:244)Øκ(cid:222)  (cid:244)υ(cid:139) (cid:240)(cid:239)  (cid:240)(cid:239)υ  (cid:240)ÆρÆ(cid:244)(cid:221)θ(cid:229)(cid:244)ÆØ
(cid:243)(cid:244)(cid:239)  (cid:240)Æρ(cid:192)ρ(cid:244)ηµÆ  ΙΙ.’,

(e) Annex  II  shall  be  replaced  by  the  text  of  Annex  I

attached  hereto;

(f) Annex  III  shall  be  replaced  by  the  text  of  Annex  II

attached  hereto.

— in  the  English  language  version  of  the  Directive:

Article  2

‘The annual percentage rate of charge which shall
be  that  rate,  on  an  annual  basis  which  equalizes
the  present  value  of  all  commitments  (loans,
repayments  and  charges),  future  or  existing,
agreed by the creditor and the borrower, shall be
calculated  in  accordance  with  the  mathematical
formula  set  out  in  Annex  II.’;

(b) Article  1a(3)  shall  be  deleted;

(c) Article  1a(5)  shall  be  deleted;

(d) Article  3  shall  be  replaced  by  the  following:

‘Without  prejudice  to  Council  Directive  84/450/EEC
of 10 September 1984 relating to the approximation
of the laws, regulations and administrative provisions
of 
the  Member  States  concerning  misleading
advertising (*),  and  to  the  rules  and  principles
applicable  to  unfair  advertising,  any  advertisement,
or  any  offer  which  is  displayed  at  business  premises,
in which a person offers credit or offers to arrange a
credit  agreement  and  in  which  a  rate  of  interest  or
any  figures  relating  to  the  cost  of  the  credit  are
indicated,  shall  also  include  a  statement  of  the
annual  percentage  rate  of  charge,  by  means  of  a
is
representative  example 
practicable.

if  no  other  means 

(*) OJ  L  250,  19.9.1984,  p.  17.  Directive  as  last
amended  by  Directive  97/55/EC  (OJ  L  280,
23.10.1997,  p.  18).’;

1. Member  States  shall  bring  into  force  the  laws,
regulations  and  administrative  provisions  necessary  for
them  to  comply  with  this  Directive  no  later  than  two
years  after  the  entry  into  force  of  this  Directive.  They
shall  inform  the  Commission  thereof.

When  Member  States  adopt  those  measures,  they  shall
contain  a  reference  to  this  Directive  or  shall  be
accompanied  by  such  reference  on  the  occasion  of  their
official  publication.  The  methods  of  making  such
reference  shall  be  laid  down  by  Member  States.

2.
The  Member  States  shall  communicate  to  the
Commission  the  texts  of  the  provisions  of  national  law
which 
this
the 
Directive.

field  governed  by 

they  adopt 

in 

Article  3

This  Directive  is  addressed  to  the  Member  States.

Done  at  Brussels,  16  February  1998.

For  the  European  Parliament

For  the  Council

The  President

The  President

J.  M.  GIL-ROBLES

J.  CUNNINGHAM

1.4.98

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L 101/19

ANNEX  I

‘ANNEX  II

THE BASIC EQUATION EXPRESSING THE EQUIVALENCE OF LOANS ON THE ONE HAND AND
REPAYMENTS  AND  CHARGES  ON  THE  OTHER

K  =  m

K9 = m9

AK
(1 + i)tK

=

K = 1

K9 = 1

A9
K9
(1 + i)tK9

Meaning  of  letters  and  symbols:

K
K9
AK
A9

K9

m
m9
tK

tK9

i

is  the  number  of  a  loan

is  the  number  of  a  repayment  or  a  payment  of  charges

is  the  amount  of  loan  number  K
is  the  amount  of  repayment  number  K9
represents  a  sum

is  the  number  of  the  last  loan

is  the  number  of  the  last  repayment  or  payment  of  charges

is the interval, expressed in years and fractions of a year, between the date of loan No 1 and those of
subsequent  loans  Nos  2  to  m

is the interval, expressed in years and fractions of a year, between the date of loan No 1 and those of
repayments  or  payments  of  charges  Nos  1  to  m9
is the percentage rate that can be calculated (either by algebra, by successive approximations, or by a
computer  programme)  where  the  other  terms  in  the  equation  are  known  from  the  contract  or
otherwise.

Remarks:

(a) The  amounts  paid  by  both  parties  at  different  times  shall  not  necessarily  be  equal  and  shall  not

necessarily  be  paid  at  equal  intervals.

(b) The  starting  date  shall  be  that  of  the  first  loan.

(c)

Intervals between dates used in the calculations shall be expressed in years or in fractions of a year. A
year is presumed to have 365 days or 365,25 days or (for leap years) 366 days, 52 weeks or 12 equal
months.  An  equal  month  is  presumed  to  have  30,41666  days  (i.e.  365/12).

(d) The  result  of  the  calculation  shall  be  expressed  with  an  accuracy  of  at  least  one  decimal  place.  When

rounding  to  a  particular  decimal  place  the  following  rule  shall  apply:

If  the  figure  at  the  decimal  place  following  this  particular  decimal  place  is  greater  than  or  equal  to  5,
the  figure  at  this  particular  decimal  place  shall  be  increased  by  one.

(e) Member States shall provide that the methods of resolution applicable give a result equal to that of the

examples  presented  in  Annex  III.’

(cid:229)
(cid:229)
(cid:229)
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ANNEX  II

‘ANNEX  III

EXAMPLES  OF  CALCULATION

A. CALCULATION OF THE ANNUAL PERCENTAGE RATE OF CHARGE ON A CALENDAR BASIS

(1  YEAR  =  365  DAYS  (OR  366  DAYS  FOR  LEAP  YEARS))

First  example

Sum  loaned:  S  =  ECU  1 000  on  1  January  1994.

It is repaid in a single payment of ECU 1 200 made on 1 July 1995 i.e. 1 1⁄2  years or 546 (= 365 + 181)
days  after  the  date  of  the  loan.

The  equation  becomes: 1 000 =

1 200

546
365

(1 + i)

or:

(1 + i)546/365 = 1,2

1 + i

= 1,1296204

i

= 0,1296204

This  amount  will  be  rounded  to  13 %  (or  12,96 %  if  an  accuracy  of  two  decimal  places  is  preferred).

Second  example

The sum loaned is S = ECU 1 000, but the creditor retains ECU 50 for administrative expenses, so that
the  loan  is  in  fact  ECU  950;  the  repayment  of  ECU  1 200,  as  in  the  first  example,  is  again  made  on
1  July  1995.

The  equation  becomes: 950 =

1 200

546
365

(1 + i)

or:

(1 + i)546/365 = 1,263157

1 + i

= 1,169026

i

= 0,169026

This  amount  will  be  rounded  to  16,9 %.

Third  example

The sum loaned is ECU 1 000, on 1 January 1994, repayable in two amounts, each of ECU 600, paid
after  one  and  two  years  respectively.

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L 101/21

The  equation  becomes:

1 000 =

600
(1 + i)

+

600

730
365

(1 + i)

=

600
1 + i

+

600
(1 + i)2

It  is  solved  by  algebra  and  produces  i = 0,1306623  rounded  to  13,1 %  (or  13,07 %  if  an  accuracy  of
two  decimal  places  is  preferred).

Fourth  example

The  sum  loaned  is  S  =  ECU  1 000,  on  1  January  1994,  and  the  amounts  to  be  paid  by  the  borrower
are:

After  3  months  (0,25  years/90  days):

ECU  272

After  6  months  (0,5  years/181  days):

ECU  272

After  12  months  (1  year/365  days):

Total:

The  equation  becomes:

ECU  544

ECU  1 088

1 000 =

272

90
365

(1 + i)

+

272

181
365

(1 + i)

+

544

365
365

(1 + i)

This  equation  allows  i  to  be  calculated  by  successive  approximations,  which  can  be  programmed  on  a
pocket  calculator.

The  result  is  i = 0,13226  rounded  to  13,2 %  (or  13,23 %  if  an  accuracy  of  two  decimal  places  is
preferred).

B. CALCULATION  OF  THE  ANNUAL  PERCENTAGE  RATE  OF  CHARGE  ON  THE  BASIS  OF  A
STANDARD  YEAR  (1  YEAR  =  365  DAYS  OR  365,25  DAYS,  52  WEEKS,  OR  12  EQUAL
MONTHS)

First  example

Sum  loaned: S  =  ECU  1 000.

It  is  repaid  in  a  single  payment  of  ECU  1 200  made  in  1,5  years  (i.e.  1,5 × 365  =  547,5  days,
1,5 × 365,25  =  547,875  days,  1,5 × 366  =  549  days,  1,5 × 12  =  18  months,  or  1,5 × 52  =  78  weeks)
after  the  date  of  the  loan.

The  equation  becomes:

1 000 =

1 200

547,5
365

(1 + i)

=

1 200

547,875
365,25

(1 + i)

=

1 200
18
12

(1 + i)

=

1 200
78
52

(1 + i)

or:

(1 + i)1,5 = 1,2

1 + i

= 1,129243

i

= 0,129243

This  amount  will  be  rounded  to  12,9 %  (or  12,92 %  if  an  accuracy  of  two  decimal  places  is
preferred).

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1.4.98

Second  example

The sum loaned is S = ECU 1 000, but the creditor retains ECU 50 for administrative expenses, so that
the  loan  is  in  fact  ECU  950;  the  repayment  of  ECU  1 200,  as  in  the  first  example,  is  again  made
1,5  years  after  the  date  of  the  loan.

The  equation  becomes:

950 =

1 200

547,5
365

(1 + i)

=

1 200

547,875
365,25

(1 + i)

=

1 200
18
12

(1 + i)

=

1 200
78
52

(1 + i)

or:

(1 + i)1,5 = 1 200/950 = 1,263157

1 + i

= 1,168526

i

= 0,168526

This  amount  will  be  rounded  to  16,9 %  (or  16,85 %  if  an  accuracy  of  two  decimal  places  is
preferred).

Third  example

The  sum  loaned  is  ECU  1 000,  repayable  in  two  amounts,  each  of  ECU  600,  paid  after  one  and  two
years respectively.

The  equation  becomes:

1 000 =

600

365
365

(1 + i)

+

600

730
365

(1 + i)

=

600

365,25
365,25

(1 + i)

+

600

730,5
365,25

(1 + i)

600

=

(1 + i)

+

12
12

600

(1 + i)

=

24
12

600

(1 + i)

+

52
52

600

104
52

(1 + i)

=

600
(1 + i)1 +

600
(1 + i)2

It  is  solved  by  algebra  and  produces  i = 0,13066  which  will  be  rounded  to  13,1 %  (or  13,07 %  if  an
accuracy  of  two  decimal  places  is  preferred).

Fourth  example

The  sum  loaned  is  S  =  ECU  1 000  and  the  amounts  to  be  paid  by  the  borrower  are:

After  3  months
(0,25  years/13  weeks/91,25  days/91,3125  days):

After  6  months
(0,5  years/26  weeks/182,5  days/182,625  days):

After  12  months
(1  year/52  weeks/365  days/365,25  days):

Total:

ECU  272

ECU  272

ECU  544

ECU  1 088

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L 101/23

The  equation  becomes:

1 000 =

272

91,25
365

(1 + i)

+

272

182,5
365

(1 + i)

+

544

365
365

(1 + i)

=

272

91,3125
365,25

(1 + i)

+

272

182,625
365,25

(1 + i)

+

544

365,25
365,25

(1 + i)

=

=

272

(1 + i)

+

3
12

272

(1 + i)

+

6
12

544

(1 + i)

272

(1 + i)

+

13
52

272

(1 + i)

+

26
52

544

(1 + i)

12
12

52
52

=

272
(1 + i)0,25 +

272
(1 + i)0,5 +

544
(1 + i)1

This  equation  allows  i  to  be  calculated  by  successive  approximations,  which  can  be  programmed  on  a
pocket  calculator.

The  result  is  i = 0,13185  which  will  be  rounded  to  13,2 %  (or  13,19 %  if  an  accuracy  of  two  decimal
places  is  preferred).’