When planning to enter into a loan commitment, we should remember that in addition to the capital part, we will have to add additional credit fees to the total cost of the loan, which the bank will impose on us. We write below about the costs and what they involve, in the latest article. We invite you to read.
What should we keep in mind when deciding on a loan?
If we have a goal to accomplish or want to finance a dream, usually without sufficient savings, we reach for additional financing in the form of a loan. However, when making a commitment, we must remember that the total cost of the loan also includes additional credit fees. Therefore, when planning to use the loan, let’s analyze:
- How much money do we really need in order not to borrow more than necessary?
- How much time do we plan to pay back the liability
- What specific product are we planning to use?
- What additional commitment costs will be acceptable to us
What are the additional credit fees?
It should be remembered that incurring a liability, the only cost will not be only the interest rate, i.e. the amount that the bank earns for granting us a loan. There are a few additional costs that we have to take into account. And rather the field for negotiation with a bank or banking institution will be minimal or virtually zero here. Basic costs, i.e. bank commissions and fees, are very important elements to which we should pay special attention. Their amount may change during the term of the contract.
Among the costs, there may be, for example, a fee for processing our loan application. Another is the fee for granting the loan and its amount can reach even 5% of the value of the loan itself. We should not miss products that the adviser will be obliged to sell to us. Such a product can be e.g. insurance.
In addition, you should consider the cost of the advisor’s service and some other minor costs that your bank or non-banking institution will include in your loan agreement. The main thing is to be aware of the credit fees that will be added.
Where to look for loans with the lowest fees?
When starting a search for a loan with the most favorable credit fees for us, you should first make a solid insight among friends or family who have already used financial products. This will allow us to assess the credit market from different sides, knowing the experiences of different people.
The next step will be to examine the offer of various banking institutions that are available on the market. Only, importantly, we do not apply for a loan to many banks at the same time, as this will negatively affect our credit standing. However, we can do something else.
It is worth to thoroughly trace the Internet and information about examples of fees that banks clearly provide in their messages on websites. With more time, we can go to stationary outlets to check the rules governing a given bank. We should not decide on an accidental loan, an obligation that we do not need, or an interest which only convinced us. We should know all the costs so as not to be disappointed.
How can the loan charges be calculated?
There are two ways to find out for yourself the costs of loan fees that will apply to us when we take out a loan. This can be done using online loan calculators. But you can also count by the formula:
For fixed loan installments it will look like this:
We have marked the loan installment as R. We have marked the value of the capital we are borrowing with. K. We marked the number of loan installments with which we want to pay back.
To find out the value of one installment, we still need to calculate the value marked with the letter “q”. We will do it according to the formula:
We marked the interest rate with the letter “r” and the number of capitalization periods with the letter “m”.
In the case of decreasing installments, the formula will be as follows:
The loan installment is similarly marked here as R. And the value of the capital which we borrow as K. N will instead symbolize the number of loan installments. In addition, we have the designation “n” as the number of the installment sought and “r” as the interest rate, which is expressed as a fraction. We calculate each installment separately and then sum them up and find out the total cost of the loan.
What to look for in particular when paying for a loan?
We should remember that the contract should be read carefully before we decide to sign it. Each so-called a small print can get us in trouble if we miss the loan fees.
And by signing the contract, the bank will decide that we have accepted everything and will have no doubts afterwards. Credit is a serious commitment, regardless of the amount. It is to help us solve a problem or achieve a goal.