What you need to know about interest on a loan in order not to remain in debt to the bank

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Attention to detail will help you understand the contract and avoid paying fines.

What is interest on a loan

Interest rate is the amount specified in percentage terms that the bank's client pays for using the loan. It is calculated for a specific time period. So, 15% per annum will mean that the recipient of the loan will annually, in addition to the principal amount of the debt, transfer 15% of it to the bank. But this does not mean that to calculate the overpayment, it is simply enough to take the interest and multiply it by the number of years for which the loan has been taken.

First, there is such a thing as the total cost of the loan (CCC).

The CPM includes all expenses of the borrower, including commissions and other fees.

So, when calculating the full cost of a mortgage, the bank will take into account the cost of appraising an apartment. This service is provided by a third party, but without the credit, you would not order it, so these costs are attributed to the mortgage. Moreover, if the waste is provided for by law, and not by the requirements of the bank, it will not be taken into account in the CPC. For example, OSAGO will not be included in the full cost of a transport loan.

The full cost of the loan must be printed on the first page of the agreement in large print in a rectangular frame under the Federal Law "On Consumer Credit (Loan)". It is indicated as a percentage per annum or in monetary terms.

It is on the PUK that you need to pay attention to understand how much you will actually pay on the loan. The exception is a credit card. The full cost of the loan will not be very informative, since it is calculated based on the entire credit limit, while interest will be charged only on the amount owed.

Secondly, interest is charged not on the entire loan amount, but on the remaining debt on it. But here, too, everything is not so simple. There are two types of payments:

1. Annuity. The bank adds up the amounts of the client's financial obligations, including interest, and divides them over the entire loan term. As a result, the borrower pays the same amount to the institution every month. But the payment structure is not the same: first, the lion's share is interest, and towards the end of the term, the client begins to actively pay the principal debt.
2. Differentiated. The principal amount is divided by the loan term, and interest is calculated monthly. For the consumer, this is a long way from the maximum payment to the minimum, and in the beginning this payment will be quite high. But the main debt is paid off faster.

What affects the size of the loan rate

Central Bank refinancing rate

This is the same interest rate at which loans are taken. Only in this case, the Central Bank lends to financial institutions.

A commercial bank takes a loan from the Central Bank for a year and during this time earns on loans that it issues to the population. Accordingly, its interest rate for clients should be such that both the Central Bank's interest can be returned and earned.

Now the refinancing rate is equal to the key rate and amounts to 7.25% The Bank of Russia has decided to keep the key rate at the level of 7.25% per annum.

Borrower solvency

The more risks that you will not repay the loan, the less favorable rate you will be offered. For example, interest is usually higher when obtaining loans on two documents, without proof of income. This also includes the presence or absence of collateral, the transfer of salaries to a bank account, consent to insurance, and so on.

Inflation rate and loan term

Two related parameters: the bank intends to make money on you not only tomorrow, but also in 10 years, if you take out a loan for this period. Therefore, the rate is likely to take into account the inflation forecast for the entire lending period.

How not to lose money

Read the contract carefully

The law provides for a special frame in which the full amount of the loan is entered. Ignoring it is negligence on your budget. Read the agreement in its entirety and carefully, do not skip paragraphs, even those written in small print. Feel free to ask the manager questions.

Once you have signed the contract, you have agreed with everything that is written there. Therefore, eliminate all contradictions before signing the document.

Don't be late payments

Put yourself a reminder on your phone, computer and microwave, circle the days of calculation in the calendar with red circles. Mark when these dates fall on a weekend to ensure that the payment is credited in advance. Punctuality will help you avoid fines and late fees. And the size of the penalties can be quite significant.

If you can repay the loan ahead of schedule, repay

Interest is charged on the principal amount. Early payments make it less. Therefore, the faster you pay off the loan, the less the overpayment.

Do not take long-term loans in foreign currency

The interest on foreign currency loans is lower, but dollars or euros must be stable in order for the loan to turn out to be cheaper than its ruble counterpart. If you do not have the gift of clairvoyance and unbridled optimism, it will be difficult for you to predict currency fluctuations in the long term.

You can quickly repay a small loan, even if something goes wrong. When the ruble falls, a long-term foreign currency loan will turn into an unbearable burden, which will draw all the money out of you for servicing yourself, that is, for interest.

This rule does not apply to people with income in foreign currency, you do not depend on the ruble.

Small things

Watch your pennies carefully. This is 5 kopecks for you - a coin unworthy even to prop up a table leg. For a bank, a delay in this amount is a reason to fine you. It is also lucky if the sanctions are charged as a percentage of the amount of delay. And if as a percentage of the principal debt?

Follow the terms of the contract

No wonder you read the contract, follow what is written in it. For example, if you forget to renew the insurance, thanks to which you were offered favorable terms on the mortgage, the bank may increase the interest rate. And it will be more difficult to reverse this process.

Keep in touch with the bank

If an employee of a credit institution tries to contact you, pick up the phone and open SMS. It is better to read the ad for the hundredth time than to skip an overdue message or other important information.

Use your credit card wisely

Pay off your credit card debts in an interest-free period and do not withdraw cash from it, as this is most often a commission.