Every year, hundreds of thousands of Polish women and Poles decide to take out a cash loan. For many of us, these types of products are the only way to finance the most important needs and long-delayed dreams. However, it is worth remembering that every loan will cost us – after all, banks have to make money on it.
Calculation of the monthly loan installment despite appearances is not so easy. Lenders add to the total amount not only a margin, but also a base rate and a commission. What’s more, credit installments are often increased by compulsory insurance and other hidden fees.
In today’s article, we will check what really amounts to the monthly installment of the loan. We will indicate what fees affect the total cost of the commitment and how to calculate the monthly amount we will have to pay in connection with the bank granting us a cash loan.
Loan installment – what does it consist of?
As we already mentioned at the beginning of our article, loan installment is not only an appropriate part of the sum of money borrowed from the bank. Each installment consists of:
- the capital part – an appropriate “portion” borrowed from the bank, the sum simply called the capital of the loan;
- interest part – a proportionally calculated interest rate for a given loan.
It is also worth noting here that the interest portion of the installment adds up not only to the margin that the bank will earn on granting us credit, but also the base rate, which was determined by the national financial market.
Construction of a loan installment
loan installment = capital part of installment + interest part (margin + base rate)
Regardless of whether we decide to repay the obligation on a permanent basis (fixed installments), or in a decreasing manner (decreasing installments), the capital part will not change. This means that each month we will pay the same amount of the sum we received from the bank.
What may change may be the interest portion of the loan installment. If we decide to install decreasing installments, the first months of repayment will cost us more, and the last – definitely less. This is what the bank will feel first of all because a credit institution owns a profit that constitutes a pillar of the interest portion of each installment.
Non-interest loan costs
The interest rate on the loan is not the only cost of financing with which we should count. This interest rate is made up of the margin, that is the bank’s remuneration for the fact of granting the loan and its service, as well as the base rate, ie the form of the levy imposed by the state regulations of the credit market.
In addition to interest, i.e. just the interest rate on the loan, banks may demand from us a lot of other charges, for example commission (not necessarily payable in advance), insurance or cross-selling costs, as well as account maintenance fees. What’s more, in the case of cash loans granted in foreign currency, an additional tax will also be tax on loan income. All these factors affect the amount of the installment paid by the borrower.
Banks are obliged to present the total borrower cost to the future borrower. It is on the basis of this sum that it is possible to calculate the appropriate loan installment – all we need to know is how many of these installments we have to pay off . Of course, all this information can be found in the loan agreement.
It is worth adding here that the total cost of the loan is not affected by such factors as the costs of notarial fees, fees related to collateral or additional loan insurance, as well as fees resulting from changes in exchange rates. The amount of the installment will also not include the costs we pay for once. An example is the commission that banks sometimes ask for before financing.
How to calculate the installment of a cash loan?
Calculating your cash loan will be easy if you only have a loan agreement with you. It is on this document that all the data necessary to calculate the loan installment is available.
Loan installment calculator
loan installment = total amount to be paid (loan amount + total loan costs *) ÷ number of installments provided for in the schedule
* to the total cost of credit should not be included in this case, which we pay outside of installments – for example, once.
Calculation of installments without a contract
The APR – Actual Annual Interest Rate is an indicator that makes it easier to estimate the total loan cost before it is incurred (ie before receiving a loan agreement). This ratio is expressed as a percentage, not a sum, of the total cost of credit on an annual basis to the amount of the loan, i.e. the sum borrowed by us.
In contrast to the nominal interest rate, the APRC includes the majority of fees related to granting the loan, not only the mark-up and the reference rate. For example, for a loan of PLN 100,000, the total cost of which is PLN 10,000, the APY will be: PLN 10,000: PLN 100,000 x 100% = 10%.
Knowing APY, we also know the total cost of the loan. After adding up this cost with the amount of the loan (the sum we borrow from the bank) we will receive the total amount to be paid. This result should be divided by the number of installments to get the value of one installment. Of course, these calculations should be separated from those costs, which we pay for once (except for installments).