What are the loan costs?
The loan can be taken by the client for any purpose. Both banks, credit unions and loan companies can grant this type of obligations. The cost of the loan is the total amount that we have to pay back for granting it. We not only pay back the capital borrowed from the creditor, but also transfer additional fees to his account.
The cost of a cash loan includes many fees, such as interest, commission, required insurance and more. They are always given in the contract, as well as in the current bank regulations. For this reason, the best solution before signing a loan contract is to read it carefully.
It is worth noting that the cost of a cash loan varies in every financial institution. It is enough to look through the offers of banks to see the difference in the cost of the liability. The actual interest rate informs us best about the cost of the loan.
The APRC reflects the relationship between the borrower’s total costs and the amount of capital received. It is not a cost, but takes into account all fees for the loan, which shows us how much we should give to the bank or non-bank company.
What does the cost of the loan consist of?
The total cost of the loan is the sum of differentiated fees. So what does the cost of the loan consist of? We explain the components of the loan cost in the easiest way possible.
- Capital – this is the amount of the loan that we took out from the creditor. It is capital that has a large impact on the total cost of the loan.
- Interest – given as an interest rate per annum. Nominally, it may not be higher than four times the lombard rate set by the NBP. There is a fixed interest rate that does not change throughout the loan period, as well as a variable interest rate – in this case the percentage depends on the interbank market in force – the Cream bank indicator and may change throughout the loan period.
- Additional fees – they are individual for individual banks and loan companies. The actual Interest Rate takes into account additional costs and interest. As a result, the borrower has a real relationship as to the capital borrowed and the total cost of the loan.
Additional loan costs – what are they?
Interest can be easily checked on the basis of the Real Interest Rate. However, this indicator does not take into account additional costs.
To know the exact cost of the liability, including all fees, you need to trace the actual interest rate. Additional costs of a cash loan include fees such as:
- Commission for granting loans – collected after paying out the capital and can be added to the first installment or credited, which is spread over installments.
- Insurance required – primarily protects the company against the borrower’s insolvency. Usually, the insurance company, in return for the premium received, undertakes to repay the customer’s debt in the event of his death, permanent disability or inability to work.
- Preparation fee – a fee for preparing a loan application.
- Establishment of additional collateral for the loan – usually financial, but it may be an indication of the guarantor, co-borrower or a borrower. There are also blank bills of exchange or blocking of funds on the account.
- Including additional fees for late repayment of the loan – interest is charged to the bank for each day of delay in repayment. In the event of a lack of solvency, you should refinance the loan.
There is often a situation that loan companies give up some additional fees, such as commissions, to encourage customers to sign a loan agreement. However, as part of the compensation, other costs of the loan are increased (large amount of insurance or larger preparation fee).
For this reason, one should not sign loan agreements without hesitation, but carefully trace all costs and determine whether the cash loan offered is suitable for us. This will avoid surprises due to the additional, unexpected costs of the financial commitment.
The total cost of the loan and the total amount of the loan are differences
What is the difference between the total cost of the loan and the total amount of the loan? The difference between these concepts is very intuitive. The last expression means the amount that is transferred to us when we can get a cash loan from the creditor.
The maximum loan amount ranges from a few to several thousand in loan companies. These are usually offers of payday loans, incurred for a short period of time, but their advantage is that the obtained money is transferred almost immediately to the client’s account.
In banks, the maximum loan amount can reach much larger sums, however, we must complete more formalities and the waiting time for decisions may be longer. The total cost of the loan is a completely different concept. This is the amount that we must finally give back to the creditor for the loan granted.
The cost of the loan consists of the capital obtained by the client as well as interest and additional fees determined in the terms of the loan agreement with a given financial company.
Loan without costs – is it possible?
There are often loans without costs at non-bank companies’ offers. In practice, this means that we only give away borrowed capital. We are not charged interest or any preparation fees. However, the maximum loan amount that we can get is small and ranges from USD 1,000 to several thousand.
Such a free loan is to encourage customers to use the services of a loan company again. Obtaining another commitment is not free, however, and the borrower must take into account the costs.
Banks do not offer loans without costs, but you can meet with a commitment that has no commission or preparation fee.
A loan without costs in a non-bank company is therefore beneficial for people who need to quickly get money for unexpected expenses or to finance renovations or buying equipment at home. However, this is not a large amount, so the client in case of greater financial needs must turn to the offer of banks.
The cost of the loan and APRC
The actual Interest Rate, or APRT in short, is an important indicator of loan costs. This parameter indicates the ratio between the borrower’s total costs and the amount of the loan taken out.
It not only includes the costs of interest, preparation fees and additional fees, but also takes into account the value of financial flows related to loan repayment in particular loan periods.
APRC is expressed as a percentage and is given in the regulations of the loan company and the bank.
How to calculate the total cost of the loan?
How to calculate the cost of a loan without reviewing loan terms, which are often written in a language that we do not understand, and the costs are not always clearly visible? A good solution is a calculator that calculates the cost of the loan.
The tool will show you various offers of loan companies and banks, as well as clearly showing all the costs of the loan you are interested in. In addition, it filters the best cash loan offers, so we can choose the best offer on the market.