What does the cost of the loan consist of?

When deciding to take a loan, we must be aware that we will not give the bank only the borrowed amount. This operation involves a number of additional costs that we need to consider to assess our chances of paying off the commitment. Let’s look at all the costs that we have to meet with having a bank loan and what they result from.

Additional fees

Additional fees

They are usually included in the cost of the loan and they are repaid with each subsequent installment. This does not mean, however, that we pay additional fees throughout the duration of the loan.

What are the additional fees charged?

This may be a fee for processing the application, for issuing a credit decision or other commissions and fees, as well as a preparation fee. It is worth verifying its amount and comparing it against the entire loan. It may turn out that these charges are too high proportionally and then it is better to take advantage of another loan offer.

Commission

Commission

Interchangeably used with the aforementioned preparation fee.

This is a one-time fee charged for the payment of credit granted. However, it is added to the capital and interest installments, so often we will not feel its amount, because this amount is spread over a long time.

The amount of commission depends on the individual offer of each bank. There is often a situation in which banks offer loans with zero commission, but then the preparation fee turns out to be higher, which we are often not even aware of, because we do not know how much the commission could be, so it is difficult to assess such a situation.

APRC

APRC

We are talking about the Real Annual Interest Rate, i.e. the total cost of the loan, taking into account exactly every dollar spent on the loan by the customer. This property is always expressed as a percentage

The loan agreement should also clearly indicate the total amount to be paid, including the loan costs, in numerical form.

Insurance

Insurance

Very often it is an obligatory additional element that banks want before granting a loan. The loan security is, of course, implicitly helpful to the client in the event of random events such as an accident, permanent or temporary inability to work, but it largely works together.

Insurance costs generate the largest expenses of the whole project, which is a loan, so if we are sure that we are able to pay it back on time or even before the end of the contract – it is worth considering the version of the loan without insurance. Sometimes, offers not requiring such security are prepared for a specific group of people. This option is usually available to people with high income and a very good credit history, but this is not a rule and you should not always be guided by this relationship.

Lack of insurance, compared to other costs of credit, we will feel significantly in a way that relieves our monthly installment.

However, if you had to take out a loan with insurance or simply choose the form of security, you can get a refund of part of this amount for the unused period of insurance.

This happens when we repay the loan in full before the end of the contract. If the commitment is closed before the due date, the premium is paid out proportionally for the unused insurance period and in the case of large loans we can count on several thousand returns.

Interest

Interest

Interest is present with every loan, because it is one of the main sources of income for banks when granting loans. Currently, interest rates on loans range from around 5% to around 10%. Interest is added to each installment, therefore, for the initial duration of the loan, in fact we repay only interest, which is even 1/4 of the entire loan. Interest rates are selected individually by the banks. Currently, banks break through offers in this area offering a very low interest rate, which, however, attracts a large audience.

Other costs

Other costs will be borne only by the unreliable borrower. It is about debt collection costs, sending reminders about the necessity of repayment and all actions aimed at encouraging the client to pay installments. In fact, a customer with arrears can increase their debt by up to half and of course we are talking about extreme cases for people with a large loan amount.

In conclusion, taking a loan must be a thoughtful decision. The creditworthiness that BIK will confirm is not all, because we also have to designate this ability ourselves and ask ourselves whether I can actually pay the given liability. Before taking a loan, it is worth checking the offers of several banks and compare where we will lose the least, then verify what monthly installment we are ready for, and only at the end go to a specific branch and submit an application. A loan is a responsible operation and the person who decides to do it must also be the same.

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