Low interest rate, lowest installment guarantees, interest refund – it’s easy to catch the bait. How much are loans and how do you find out about it?
There are a lot of lending institutions. The loan can be obtained in a bank, credit unions, non-bank and payday company. The costs vary, although it is widely known that the best conditions can be obtained at the bank.
Although there are exceptions to this rule – the old proverb says that “all that glitters is not gold.” We review what to look for when analyzing various loan offers.
The first question from a standard customer seeking funding
The interest rate is the most frequently used measure of the cost of credit. Banks are trying to outdo the lowest possible values. However, they do not have a free hand – the maximum amount may not exceed four times the NBP lombard loan rate. In October 2015 it is exactly 10%.
The interest rate is important, but it is only a small part of the total cost of the loan. Assuming the highest value, for each thousand borrowed we should give one hundred zlotys a year. It is worth paying attention to whether the interest rate is fixed or variable. If this is the second option, the installments will change during the change in the credit market. The interest rate consists of WIBOR + bank margin.
The first component significantly increases the cost of credit. The bank charges a commission in the amount specified for granting the loan. It is worth noting which – it can be both two and 20%. The commission is often charged in advance – if the bank charges 5%, then we take out a loan of 105,000, although we receive 100,000 on hand. The commission rate can be liquid and depend on many factors – for example, creditworthiness.
Banks often offer insurance for loans. Although it is not mandatory, it often affects other parameters – without insurance, for example, the interest rate may increase significantly. Policies include, for example, job loss, accident, hospital stay – coverage must be stated upon accession. The premium may be taken in advance, but may also be part of the installment. You can opt out of insurance at any time and recover part of the premium, however, this is often associated with an increase in other costs.
Do you want cheap credit? No problem. All you have to do is choose your personal account, account limit and credit card. Banks are happy to welcome customers who decide to use other services. The interest rate and cost of the loan can be clearly reduced if the customer additionally pays by credit card. Although this seems like a good proposition, the costs incurred with other products are often higher than saving on credit. So what if the installment will be reduced by PLN 10 if the monthly service for a credit card is PLN 13?
The total cost of the loan
APRC – actual annual interest rate. Thanks to it, the customer knows exactly what the real cost of credit is. APRC is given as a percentage on an annual basis, it includes all commissions, fees, insurance and other components of the loan. This is the most important column that customers should look at.
The APRC for a representative example of a loan is 19.41%. Total loan amount PLN 10,360 for a period of 38 months, variable interest rate 10.00%. total cost of credit in the amount of PLN 3186.38, interest in the amount of PLN 1773.20, commission for granting the loan in the amount of PLN 310.80, monthly insurance premium PLN 29.01 (in total PLN 1102.38 in the whole loan period). The total amount to be paid by the Borrower is PLN 13,546.38.
As you can see, although the interest rate is 10%, the remaining costs almost double this value. It is worth remembering about the APRC always when making any commitments. Banks are also required to provide the so-called information form. This makes it easy to compare the total cost at different banks.