Due to the provisions contained in the anti-usury law, banks can compensate for the fall in profits by raising margins only to a certain level. Due to changes in the market in the banking sector, various fees and commissions on credit have a growing impact on the amount of credit costs.
What are loan commissions?
The loan commission is a one-off fee charged by the bank when granting, and more precisely when paying out the loan. The commission may also include fees charged on a regular and cyclical basis, for example applied to credit card or ROR account limits with debit or even standard cash loans (then the additional commission is referred to as the operating fee for the loan service).
In general, all fees and credit commissions can be divided into:
1) Commissions charged at the start-up (disbursement) of a loan – banks charge this type when withdrawing funds to an account, although in many cases it is possible to add commissions to principal and interest installments (this, of course, increases the amount of the monthly installment). With one-off commissions charged on loan disbursement, an important role is also played by whether the interest rate is calculated on the loan amount less the commission.
If the bank determines the amount of the monthly capital and interest installment before collecting the loan commission (ie it is added to the loan amount) – then the monthly installment amount will be higher. Very often, this way of charging interest on loans with a one-off commission is hidden by the bank until the loan agreement is signed. Meanwhile, differences with a dozen or so percent of commissions on loans for high amounts can be significant.
2) Operating fees and other commissions related to loan servicing – such commissions include all fees charged by the bank during the duration of the loan agreement. They are very often used for loans paid in tranches (monthly, quarterly, etc.), as well as for credit cards or ROR accounts with a debit limit.
The loan service charge is charged either at the disbursement of loan tranches, or for the use of a loan or exceeding a specified credit limit. Increasingly, you can also meet with commissions in standard cash loans, which are automatically charged when you pay money.
3) Commission for early repayment of the loan – it would seem that faster than expected contract repayment of loan installments is very positive for the borrower. Not for the bank. Many mortgage offers, which are the cheapest and the lowest interest rate in relation to other loans, include a commission for early repayment due to the fact that the borrower pays only the capital part for the first few years (depending on the loan period it can be up to 5 years from loan start up).
It is only in the next years, or more precisely in the second half of the contract, that the interest part begins to prevail over the capital part (banks earn only on the interest part and additional credit costs, not on the capital part). Most often the commission for early repayment in the case of mortgage loans is charged up to a maximum of 5 years of the contract and ranges from 1% to even 5% of the loan amount.
4) Commission for processing a loan application – fees for loan applications can be collected before granting a credit decision. They are most often used by loan companies, financial intermediaries and even banks, although in the latter the commission is usually charged only after a positive consideration of the application at the time the loan is activated.
5) Fee for the valuation of a property constituting loan collateral – when the loan is secured by a real estate mortgage, a valuation must be made based on a bank inspection or appraisal report. The fee for property valuation is obligatory and is necessary to take out a loan or mortgage. In the case of the appraisal report, an additional cost of 1000 PLN should be expected (depending on the property appraiser). On the other hand, the inspection carried out by the bank is even three times cheaper.
6) Fees and commissions related to insurance – currently after the implementation of the changes included in the U recommendation on the bancassurance market, the bank can not act as an insurer and intermediary at the same time. Before the introduction of changes, banks generated huge profits from the sale of compulsory insurance (more than 12.3 billion of the entire insurance market is bancassurance), and the average one-off premium of such insurance amounted to approx. PLN 460.
After the implementation of the recommendations, the bank may require credit insurance in the form of a life insurance policy, however, the borrower will be able to choose the insurer himself . Due to the fact that banks will lose significant profits from the sale of insurance products attached to loans, an additional increase in credit costs in the form of higher insurance premiums (one-off or regular, depending on the choice of the offer) should be expected.
7) Fees and commissions related to untimely repayment, exceeding credit limits or debt collection – Late repayment of the liability causes the bank to start claiming for its debts by telephone, e-mail and, ultimately, the collector’s visit. Each of these activities will certainly cost us, and the amount of such fees depends on the bank, the loan agreement and the specific debt collection company with which the bank cooperates.
What are the bank commissions?
The amount of commission is mainly determined by the type of loan (theoretically, the higher commissions are in cash loans, the lowest in mortgage loans) and the number of additional fees, the amount of the margin and interest. In general, the lower interest-rate loan (the interest rate includes a fixed margin and variable WIBOR rate in PLN loans), the higher the commissions and additional fees.
In addition, another factor affecting the amount of commission is the so-called cross-selling, that is, selling additional products when borrowing, eg opening a new bank account, deposit, credit card, insurance, etc.). When buying an additional product, banks usually go to the borrower for concessions and lower the amount of the margin or commission.
The amount of the bank commission also depends on the loan period and the type of loan. Different loans have different types of commissions (eg a commission with an early repayment is usually in mortgage loans and its amount depends indirectly on the loan period). In addition, in the case of short-term cash loans, the amount of additional fees and commissions (for commissioning and servicing the loan, calculation of creditworthiness, insurance, etc.) is by far the highest among other loan products.
The introduction of amendments to the Consumer Credit Act in 2011.r abolishing the maximum commission rate (which could previously not be more than 5%), meant that banks and loan institutions could in theory freely shape the amount of commissions and additional perinredit charges . The increase in the importance of commissions and additional fees in the area of credit costs is paradoxically favored by the anti-usury law, according to which the maximum interest rate on loans can not exceed four times the NBP lombard rate set by the Monetary Policy Council.
Gradually falling interest rates (the lombard rate currently amounts to 2.5%, so the maximum interest rate on loans can not exceed 10%) contribute to the fact that generating interest profits by increasing margins (as we mentioned earlier – the interest rate on loans consists of a fixed margin established by the bank and the variable WIBOR rate) is limited.
In this case, the only way to increase profits from lending activities is to raise commissions , whose value can in principle be freely formed. An additional problem for borrowers is the extraordinary creativity of banks, which are constantly inventing new fees and commissions, which, after all, are not included in the interest rate on the loan, and thus can be cleverly hidden.
Another factor favoring the increase in commissions and additional fees in the last dozen months is the implementation of the Recommendation U in April 2015. The main argument for introducing changes by the Financial Supervision Commission was the interest of borrowers who very often were forced to buy additional, compulsory insurance offered by the bank, which in turn caused an increase in credit costs.
The new recommendation currently allows borrowers to choose the insurer freely when buying a life insurance policy – often required by the bank for mortgage loans – but in the face of large freedom of banks in shaping commissions and perimeter fees and a drop in profits from insurance sales (bancassurance market generates huge profits for banks ), banks offset the fall in incomes with subsequent commission increases.
Currently, the commission for processing the application and launching a mortgage loan can range from 0% to even 5%. In addition, you have to take into account additional fees for insurance (bridge, low own contribution, life policy, etc.), whose value can be very diverse. It depends on the customer’s creditworthiness, value and type of property, the amount of credit, the amount of own contribution, or cross-selling, i.e. the purchase of additional banking services.
In addition, the early repayment commission should also be taken into account, which, depending on the bank, may reach up to 5% (at Getin Bank) in the case of mortgage repayment in one year. In subsequent years, the commission falls, although we can also find offers in which the commission for early repayment does not occur at all (eg BZWBK Bank and Postal).
In the case of cash loans, car loans, ROR accounts with a credit limit, credit cards, the commission amount is also extremely diverse and can range from 0 to even several dozen percent! The main problem is the fact that banks, in addition to commissions and fees for the preparation and launch of a credit product (even for the calculation of creditworthiness), may also impose fees for loan servicing by regularly charging amounts for the so-called operating fees, as well as commissions for exceeding debit or insurance (payable once or cyclically).
Data available at Comperia.pl show that even 2.5 years ago the average commission for cash loans was less than 3%. Currently it is over 5% , although in practice one can speak of several times higher values. For example, for a loan of 5,000 PLN with a 3-year repayment period at Alior Bank, you have to pay over a 30% commission for the loan itself. In turn, in such banks as Meritum, Getin Bank or Smart the commission amount is from 10 to 25%. Other offers of cash loans fortunately have much lower commissions (from 0 to 10%).
A much more important factor that should be taken into account when determining the best possible offer – both in the case of cash loans and mortgages – is the APRC and the total cost of the loan . The amount of commission, margin, interest rate or even a monthly loan installment never fully reflects the total loan costs, which, depending on the bank, may differ radically with identical parameters such as revenue, liabilities, etc.). Therefore, for offers such as loans with a 0% commission, it is worth keeping a small skepticism and calculating the other hidden costs.
It is better to choose a loan with a high commission and a low margin, or vice versa?
In simplified terms, mortgage and cash loans can be divided into those with high commission charged at the start-up of the loan and a low margin, as well as those with a higher margin and low commission. When choosing a specific offer in terms of profitability, it is worth considering in the first instance when we intend to pay back the loan.
If we anticipate that we will pay back in a very short period of time, for example within a few years at a 30-year loan term – a much more favorable solution will be to choose a low / zero commission for a higher margin. However, if the loan is repaid in accordance with the schedule, a better option will be to choose a lower margin, which will result in a reduction of the principal and interest installments.
When comparing both offers, insurance costs should be taken into account (the higher the margin, the lower the insurance costs) and other credit costs (one-time and regular). Assuming faster repayment of the loan, it is sufficient to calculate the sum of credit costs in the first and second variant (low / zero commission + high margin and high commission + low margin) at the end of the contract and at the planned loan repayment date. Thanks to this approach, based on calculations, we will be able to choose the best possible offer in a rational way.