What is the interest rate
At issuance of credit the Bank informs the client about the interest rate on the loan. Often, trying to attract customers, credit organizations declare attractive percentage on the loan, but not all borrowers pay attention to additional fees and disbursements in favor of the Bank, which significantly increases its cost. Thus the credit organisations receive their financial benefits from these fees.
According to the Instruction of the CBR No. 2008-U, banks are obliged to specify in the contract the full amount of the loan, including the payments in their favor committed by the borrower once. This document States that in calculating the total cost of credit, the credit institution is obliged to inform the borrower about all the types of payments that he will have to pay in its favor, including to specify the calculation of the following operations:
- repayment of the loan amount;
- the payment of interest on the loan;
- payment of the fee for registration of the contract;
- payment of Commission for credit granting;
Commission for account opening and account maintenance;
- fee for settlement and cash services, service credit card.
Also, the full cost of the loan includes mandatory payments to insurance companies, paying for the services of notaries and lawyers in the preparation of various required documents for pledge of the property transferred as collateral for the loan.
In the total credit cost does not include insurance payments CTP, the Commission for the receipt and repayment of the loan in cash, including payment through ATMs (sometimes those percentages can reach 3-5 % of the total amount). Not taken into account the possible payment of a fine for late payment on the loan, for card blocking, payment of fee for funds crediting to a credit card third party credit organizations, etc.
The concept of effective interest and loss of profit
All of these payments greatly increase the cost of credit to the borrower. However, in the fierce competition in the lending market, trying to attract customers, banks in most cases refuse collection of most of the commissions, but even in this case, the cost of the loan will be higher than stated in the contract. This is due to the fact that there is the concept of effective interest rates and compound interest. In this case, to calculate the total cost of credit taken the amount of lost profits of the borrower which he could make the most of your finances, if you would not pay them interest on the loan, and put on Deposit at interest.
To obtain the full amount of the loan, the borrower before signing the contract, you should carefully read the document, which will put the signature.