The total effective rate (TEG): the single figure that says what your credit truly costs

1. What does the total effective rate actually measure?

A credit has two storeys. Below sits the nominal rate, the annual percentage applied to principal. Above it, stacked up, every fee that travels with the credit — processing fees, commissions, insurances, guarantee costs and their VAT.

The total effective rate, known by its French acronym TEG, fuses both storeys into one number. It answers a simple question. Once every dinar paid for the credit is factored in, what rate are you actually bearing? Its method fits in one sentence; discount all flows, what the bank lends minus what you hand back including fees, then search for the rate that balances the equation.

That figure is no teaching device. At the Bank of Algeria, the TEG is the regulatory yardstick itself; banks declare their total effective rates semester after semester, and instruction No. 08-2016 of 1 September 2016, amended by instruction No. 06-2026 of 29 June 2026, defines an excessive rate as an overrun of the observed average effective rate. In other words, when the regulator wants to know what credit costs, it reads the TEG rather than the nominal rate. Comparing offers deserves the same discipline.

2. Why do two offers at the same 6% rate not cost the same?

One file, presented to two banks. A project of 30 million DA, financed by 30% own funds and a credit of 21 million DA at a nominal 6% annual rate, repaid in monthly instalments over seven years without deferral. The first bank charges processing fees of 0.25%, nothing more. The second applies 1% in processing fees, adds a commitment commission of 0.50%, borrower insurance at the same pricing, and a guarantee commission of 1%.

The results, computed with the ProfitPilot simulator engine:

Read the instalment line again. It is strictly identical at both banks. If you compare offers on the instalment, or on the displayed rate since both announce 6%, you will never see the 1,258,324 DA separating the two scenarios at the end. That is exactly the hole the TEG fills; at 6.64% against 8.43%, the ranking reads at a glance.

3. Which fees enter the TEG calculation?

The reading rule boils down to one criterion. Everything you pay to obtain and carry the credit enters the TEG. In Algerian banking practice this typically covers five families of cost.

Processing fees, taken when the file is set up, usually between 0.25% and 1% depending on the institution. The commitment commission, due when the bank makes funds available over an agreed period. Borrower insurance attached to the credit. Guarantee commissions when a body such as FGAR or CGCI-PME covers the file, or mortgage costs in the classic case. And finally VAT, which strikes these commissions at the standard 19% rate, weighing each line down further.

What the TEG does not carry, on the other hand, are costs unrelated to the credit itself. The appraisal fees of a property offered as guarantee stay outside the perimeter at some banks, as do mandatory insurance expenses independent of the financing. Hence one indispensable reflex, asking for the written breakdown of every component before signing. In our experience, that detailed list clarifies an offer better than any comparison table found online.

4. How can the Bank of Algeria cap help you judge your offer?

The TEG is not only a private comparison tool; it also serves as a public safety catch. Twice a year, end of June then end of December, the Bank of Algeria publishes the average effective rates observed over the previous semester, by category of facility, and sets the thresholds beyond which a credit becomes excessive. For the second half of 2026, note No. 01-2026 of 30 June 2026 retains notably 6.34% for the medium term and 6.03% for the long term.

Instruction No. 06-2026 of 29 June 2026 then tightened how that threshold is computed, bringing the tolerated overrun above the average effective rate down from 10% to 5%. Concretely, an investment credit granted with a TEG far above the market average is no longer a quiet anomaly; it nears or crosses the zone regulators treat with suspicion.

How should you use this benchmark? Three gestures suffice. Identify the category of your credit — short, medium or long term — according to its total duration. Compare the TEG of your offer against the published cap for that category. Then question any marked gap. A TEG close to the threshold may reflect a genuine risk premium on your sector, or simply a stack of negotiable fees. Either way, the question belongs before signature, not after. The investment credit simulator displays this cap check on every simulation and flags any overrun together with the reference of the text.

FAQ — Frequently asked questions

BENSAID Farouk

Financial & Economic Research Consultant — ProfitPilot NextGen Consulting

Certified sole trader and expert in financial studies, risk analysis and market research for SMEs, startups and investors in Algeria. View full profile