Credit costs – is interest the most important?
Financial products, as well as other goods we buy, cost money. Banks are not charitable institutions, so they want to earn on borrowed money. However, you have to remember that there are many offers on the market, and we want to find the cheapest.
A common mistake is to pay attention only to the interest rate on the loan, and this is not the only cost. Keep in mind that credit costs also include many other things:
- loan interest rate
- commission for launching the loan
- early repayment commission
- credit insurance
- account fee
- fee for preparing an annex to the contract
Loan interest rate
The maximum available interest rate is set by the Monetary Policy Council, currently (January 2018) the maximum nominal interest rate we can get is 10% per annum. I must point out that it is at historically low levels, so this is good news for all of us. If we get an offer with a nominal interest rate of 6-8%, we can be satisfied (we are talking here about cash loans, not mortgages). In addition, if you are looking for an offer with a long loan period (approx. 10 years), then it is worth considering the offer with a fixed interest rate, which means that it will not change throughout the entire loan period, because most of the available offers are variable-rate, and may it will increase, and with it the amount of the installment we pay.
Many of you can say why the installment should increase, if I sign a contract and make an appointment with the bank for a specific installment ?? Well, because, as I mentioned earlier, the Monetary Policy Council (MPC) sets the maximum interest rate and if it is raised, then having a loan with a variable interest rate, the installment can jump up.
Commission for granting a loan
At the current low interest rates, financial institutions are trying to add additional costs in the form of commissions, therefore, loan offers without commission for granting can be counted on one hand. So it’s worth negotiating because many banks have a range with commissions and you can always save something.
If you plan to pay off your loan ahead of time, then you should look for offers with a lower commission and a higher interest rate, because once paid the bank will not pay back and we will not save anything with earlier repayment.
Insurance for credit is an additional product on which a financial institution can earn, which means that the customer has more expensive credit. Of course, there are many insurance options, e.g. for life or unemployment, and they can be useful, but usually on the free market we will find an offer with a much lower premium than the bank will offer us.
If we decide to take out a loan with bank insurance, e.g. thanks to which the commission or interest rate will be reduced, we should know if it will be possible to opt out of such insurance after signing the contract without consequences. Because there are loan offers where the insurance is treated as collateral for the loan and after the cancellation the loan agreement may be terminated.
Early repayment commission
Currently there are no fees for early repayment, with cash loans, so if you have free funds, it is worth allocating them for early repayment of the loan.
Early repayment commission, however, can be found with company and mortgage loans, so in these cases, you should read the loan agreement carefully before making this decision.
In most cases, a free credit account is created. It must be provided with funds that will be collected on the installment’s maturity date. Several institutions, however, will offer us an option with the option of creating an account and with the transfer of remuneration. This option should help reduce the commission, or possibly obtain a lower interest rate.
Fee for drawing up an annex to the contract
Rather, all institutions will charge for this. This is an additional job that a person must be posted to examine the application and draw up a new contract. The cost, depending on the institution, about USD 50 – 200
There are a few fees around credit, but these are small amounts of several dollars that will not significantly increase the cost of the loan.