Interest on loans provision of the amount of money that is borrowed

Loan interest on your loan

Loan interest

Loan interest is a type of consideration that must be paid back to the lender in addition to the borrowed amount of money. The lender or lender therefore requests this consideration for the provision of the amount of money that is borrowed.

What exactly is loan interest?

What exactly is loan interest?

Various theories precede the emergence of this form of interest: On the one hand, the lender or lender cannot immediately spend his money because he is lending it, and therefore demands a return. On the other hand, this type of interest can be an inflation adjustment. In general, the interest can simply be described as the cost of loaned money. In most cases, the amount of interest on borrowed money depends on the term and the size of the loan or borrowed money. This is due to the fact that the risk to the lender increases, the longer the term of the loan. The risk and the resulting interest rate is determined individually by each bank or lender and depends on personal characteristics and the object in which the money is invested.

Where does this type of interest occur?

Where does this type of interest occur?

This type of interest occurs at banks or banks. If, for example, a large sum of money is borrowed to build a house, the loan interest is used. Each bank or bank has its own parameters and rules for calculating the interest. That is why there can be different amounts of interest from different donors.

What is to be considered additionally?

What is to be considered additionally?

In addition to the actual loan interest, you should also look at other parameters and conditions of the loan, such as account management fees, transaction fees or commissions, which can make a loan more expensive. Furthermore, regional credit institutions are usually particularly interested in lending cheap loans for construction projects in their area in order to promote new construction projects. Ultimately, credit calculators can help to check the individual conditions of different banks and credit institutions.

Special repayment right further payments are made with the aim of repaying the loan

What is special repayment right?

What is special repayment right?

In order to repay a loan, the borrowers contractually repay monthly installments to the lender. Special repayment is made if, in addition to these agreed installments, further payments are made with the aim of repaying the loan before the contractual date. No law obliges to a right to special repayment in whatever form of installment. It has to be agreed on a loan when the contract is concluded, otherwise you usually don’t have it.

Where does special repayment law occur?

Where does special repayment law occur?

It is therefore clear that the right to make additional repayments must appear in the loan agreement. There it is to be determined how the installments should be in amount and frequency, which may be made as a separate repayment. Most of the time, a percentage of the net loan amount, i.e. the chosen loan amount, and especially not the remaining debt, is specified in the loan agreement. Such agreements exist for all types of loans. The right to special repayments for building loans is particularly common.

What else is there to say about special repayment law?

What else is there to say about special repayment law?

Banks already take a higher interest rate for the right to special repayment. In doing so, they offset their losses in interest income in the event of early repayment. Some require compensation payment, others a prepayment penalty. This is legally limited to half a percent to one percent of the remaining debt.
The advantages are:

  • Lower total interest costs thanks to shorter loan terms
  • Repeated additional repayments reduce the total credit costs
  • Special repayment corresponds to solid flexibility in private financial planning

The disadvantages are:

  • The lender may legally take a prepayment penalty and thereby compensate for loss of interest
  • The lender is entitled to raise debit interest over the entire term of the loan

Alternatives to the right to special repayment are increasing the repayment rate, agreeing a variable loan, transferring equity to financing in another way, for example with follow-up financing or rescheduling.

Categories
Uncategorized

Cash loan at low interest rates

We have been dealing with an unchanging and very low level of BPB interest rates. Banks had to respond to this situation. That is why the interest rate on cash loans does not exceed 10.00% per annum. See n-two.net for an illustration

Interest rates are half or even lower (e.g. 4.00%)

Interest rates

At the same time, banks charge a high preparation fee for granting a cash loan. The rates of such a commission are higher than e.g. 4-5 years ago.

Experts John Claggart checked whether, despite this negative change in the amount of commissions, consumer loans are cheaper than a few years earlier.

Consumer loans have been cheaper by one third for 5 years

Consumer loans have been cheaper by one third for 5 years

An analysis of the interest rate on loans for consumer purposes alone will not answer the question about changes in the costs charged by banks. That is why it is necessary to take into account the Real Annual Rate of Interest (APRC), which, apart from interest, also includes the preparation commission, and compulsory insurance premiums and other borrowing costs.

In March 2018, the average APRC rate for new consumer loans in USD (cash and car) was 13.7%. Thanks to the data of the National Bank of Poland, we can check how the average APRC of new consumer loans has changed over the past years. This rate is:

  • March 2005 – 23.1%
  • March 2006 – 18.9%
  • March 2007 – 21.5%
  • March 2008 – 21.7%
  • March 2009 – 22.6%
  • March 2010 – 21.4%
  • March 2011 – 22.2%
  • March 2012 – 21.6%
  • March 2013 – 21.4%
  • March 2014 – 20.0%
  • March 2015 – 15.6%
  • March 2016 – 15.0%
  • March 2017 – 14.3%

As you can easily see, for a long time (2007–2012) the average APRC of new consumer loans remained at a level significantly exceeding 20.00%. Then a long-lasting downward trend becomes apparent. It should be noted that even the lack of further reductions in BPB interest rates after March 2015 did not stop the decline in the average cost of new loans for consumer purposes. In this context, a significant reduction in deposit rates may be of significance.

Due to such a change striking savings holders, banks gained access to lower-interest capital, which can be used to grant loans. The decrease in the cost of consumer loans may also result from their better repayment caused, among others, by due to the Rose Lend 500 Plus program and lower unemployment.

On the market you will find cash loans with APRC lower than 10.00%

credit money loan cash

It is worth realizing that the average level of Real Annual Interest Rate on new consumer loans from March 2018 (13.7%) was lowered by car loans. These bank products are slightly cheaper than typical cash loans thanks to the collateral on the vehicle.

Despite the difference, on the market we can find cash loans with APRC much lower than the average for all consumer loans. The above table presents such loans with a low APRC level for a representative example (below <10%).