Regardless of whether we are a natural person, a natural person running a business or an entrepreneur or we run a large company. To make many purchases, we need more cash than the one we have. In this situation, we go to the bank to give us a loan. Due to the fact that we have many branches on the market, we can also choose from numerous offers. However, how to choose the cheapest one yourself and what to look for when choosing? First of all, we need to know the total cost of the loan. Only all combined costs decide on the final price of the loan.
What are the total loan costs?
This is the amount we borrow from the bank. As much as we borrowed we will have to pay back. However, the bank must earn for selling the loan. It is obvious that this is not the only cost of credit.
The bank charges interest on the loan capital. The interest rate on the loan is disclosed annually. The legislator indicates the maximum amount of interest that the bank may impose.
Speaking of the total cost of the loan, you can not ignore the commission, i.e. the fee for the bank for granting us a loan. It is often the amount of commission that determines the price of the loan. Increasingly, we can see that banks are tempted by the offer where the interest is 0%. Let’s not be fooled, because it’s usually a marketing gimmick. And the bank’s zero interest rate reflects in the form of a much higher commission on the loan, the upper limit of which is no longer set by the legislator. The bank has complete freedom in imposing credit commissions.
Additional loan costs
These are still not the total loan costs. In addition to loan capital, interest and commission to the bank, we also have a number of additional costs. They depend on such factors as the amount and type of loan. The most common additional costs include loan insurance, which we can often opt out of, especially with low loan amounts. However, it is worth considering this carefully. In a situation of a sudden deterioration of financial situation, insurance can be very useful. Other additional costs may be a notary fee, establishing a mortgage for the bank, real estate or movable property valuation costs, etc.
To compare loans with one number, we need to know the APRC indicator, i.e. the actual annual interest rate. As a rule, the lower this ratio is, the lower the total cost of credit will be. Banks are required to inform their clients what this ratio is and to provide the total cost of the loan. APRC is the widest ratio and concerns not only the capital and interest of the loan but also includes the commission and additional costs of the loan.