A cash loan is the most popular solution that allows you to raise funds for any consumption purpose. High availability and variety of offers mean that choosing the cheapest option is not easy. We suggest what elements affect the cost of a cash loan.
According to the information from the Polish Financial Supervision Authority, the pace of lending in the area of consumer loans is not diminishing. Data as at the end of the third quarter of 2017 confirm that their increase, compared to the same period last year, was higher by approximately 30%. The appetite for external financing, in order to meet current needs, translates into the number of cash loans granted. Bearing in mind the rising trend, it is worth looking closely at what influences the price of these instruments. This will allow you to choose not only the cheapest, but also tailored to your current needs.
Nominal interest rate
This element informs about what interest rate the borrowed capital borrowed to the bank is, i.e. it is a direct measure of the interest cost of the loan. Nominal interest rates are usually communicated annually, and its maximum amount is regulated by the anti-usury law and can not exceed four times the Lombard rate of the National Bank of Poland. The limit is currently 10.00%. When assessing the attractiveness of this parameter, it is also worth paying attention to the method of calculating interest on the contracted liability.
A cash loan can be based on fixed or variable interest. The first variant guarantees the stability of the rate throughout the funding period, making it easy to estimate the total cost of the loan. The second option is based on a mechanism known from mortgage loans, where the interest rate is expressed as the sum of the bank’s fixed margin and the WIBOR rate subject to fluctuations. The frequency of updating the interest rate should be clearly displayed in the loan agreement. Currently WIBOR 3M rate is 1.71%. If we add a fixed bank margin of 4.99% to this, we will receive a nominal interest rate of 6.70%.
The second element having a clear impact on the cash loan price is the commission. This fee covers the costs resulting from the need to assess the application, credit analysis or preparation of documents. Clients assessing the attractiveness of the offer most often focus on the nominal interest rate. This is a big mistake, because it is the commission that can be the carrier of the highest costs. On the market you can easily find proposals based on a two-digit commission.
For example, the fee set at 13% for a loan of PLN 20,000 is PLN 2,600. This amount shows what the share of the commission in the total loan cost can be. Banks realize that the client often does not have the required cash, so the commission can be added to the sum of the liability and repay it with subsequent installments. Unfortunately, this mechanism increases the total cost of the loan.
People applying for a cash loan can take advantage of a number of supplementary insurance. It can be a policy in the event of job loss, chronic illness or even death. Under the applicable law, the purchase of additional insurance is voluntary. This does not mean, however, that resignation from this type of security can not affect the parameters of the offer. Sometimes, the use of a policy is rewarded with a reduction in interest or commission. In such situations it is necessary to calculate well whether lower fees compensate for the costs of additional insurance.
Actual Annual Interest Rate
Considering the presented elements affecting the cost of cash loans, it is not right not to mention the APRC. This percentage indicator was created to facilitate and accelerate the comparison of loan offers. When calculating APRC, in addition to nominal interest, additional costs, i.e. commission or insurance, are also taken into account. The change in the value of money over time is also taken into account. The offers to be compared should have the same amount, lending period and way of charging commissions (once or in installments). Analysis for the APRC should be supplemented with the verification of the total cost of the loan, which expresses the final amount to be returned to the bank.
Choosing a cash loan, tailored to our expectations, should take place without unnecessary haste. The proposal at first glance may turn out to be the most ordinary shell. Sometimes, a cursory review of the regulations is enough to discover that a zero-rated loan is covered with a commission of over a dozen percent. An efficient analysis of offers can be carried out using the rankings and calculators available in the network. It’s a good way to save money and time.