The cost of credit consists of expenses related to interest, depending, among others on the amount of the loan and the borrower’s own contribution, as well as about credit expenses, commission, necessary insurance or additional products under cross selling.
Total cost of credit
The cost of credit depends to the greatest extent on parameters such as:
Regardless of which loan we take – a large, long-term mortgage, or a short-term cash or car loan, we always have to bear some costs in connection with it. The bank lends customers money to a specific percentage, thanks to which it builds its profits.
- the interest rate on the liability,
- loan period,
- selection of equal or decreasing installments,
- the amount of approximately credit costs, which include the commission for joining the loan, insurance costs or real estate valuation, if it constitutes collateral for the repayment of the loan liability, etc.
Banks often offer customers a very attractive interest rate or bank commission, but in return the borrower must opt for the so-called cross selling, ie simultaneous use of a bank with other bank products, including bank account or When will the bank return the stolen money from the card?
Parameters valid for loan costs
The interest rate affects the cost of the loan. The interest rate is calculated on a yearly basis and is added to each monthly installment repaid by the customer. The interest rate is the result of the combination of the bank’s margin and interest rate, usually interest rate. Lenders only influence the amount of margin and it is necessary to pay special attention when choosing a loan offer. The interest rate is the variable interest rate component determined by the National Bank. The level of margins is influenced by factors such as:
- the amount of own contribution (for mortgage loans it is a minimum of 20% of the value of the property purchased),
- Source of borrower’s income,
- report on the current credit situation and the customer’s credit history,
- loan period,
- cross selling.
Banks also set the amount of commission for granting the loan. It usually amounts to a few percent of the amount of the liability and can be either credited or the customer must pay its own funds before taking out the loan.