Each bank and every lending institution is obliged to thoroughly inform consumers about all costs related to taking out a bank loan, non-bank loan or payday loan. The Consumer Credit Act of 2011 and the Mortgage Credit Act of 2017 make this clear. What’s more, not only creditors and lenders are required to provide reliable information. Acts also oblige brokers and credit agents to do so. One of the costs that banks, credit institutions, brokers and credit agents are required to report is actual interest.
What is the actual interest rate and what does it contain?
The total cost of the loan is the sum of all fees that apply to the loan. Therefore, both interest and non-interest costs will be within their scope. Interest expense is the interest rate , which consists of the reference rate and the bank’s margin. Apart from interest costs, it will include:
- commission for granting credit or loan
- obligatory fees, e.g. preparation fee, loan granting fee, application processing fee
- the possible cost of credit insurance – the presence of insurance depends on the individual arrangements of banks or loan institutions
All of the above-mentioned costs are included in the APRC, i.e. the actual annual interest rate. APRC is real interest otherwise . The actual interest rate is calculated based on the total cost of credit or loan, taking into account all fees incurred.
How is the real interest rate helpful?
Be careful when looking for a loan or credit offer and don’t be fooled by appearances. We often become victims of the so-called marketing tricks and we are deceiving the nominal interest rate, which is more often exposed by institutions than the actual interest rate. However, it should be remembered that the more reliable cost of our commitment will be presented in real interest, because it contains all the costs that we will incur taking the loan. APRC is a great tool for comparing offers, so in order to avoid hidden costs, we always pay attention to the APRC percentage, i.e. the actual interest rate. Not only does it present a real picture of the cost of credit, but also gives the opportunity to quickly compare the attractiveness of many products available on the financial market.
What is the difference between real and nominal interest rates?
The meaning of these two terms should be distinguished. The nominal interest rate only represents the loan interest rate, without any other costs associated with it. The nominal interest rate will include WIBOR, i.e. the reference rate and the bank’s margin, i.e. how much the bank will earn from transactions with us. However, the actual interest rate includes all costs and can be determined by the indicator of the entire “price” of our commitment.
Impact of risk on the margin in bank loan interest rate
Act and actual interest
The Act of May 12, 2011 on consumer credit attaches great importance to fulfilling the relevant information obligation towards the Customer. It imposes a number of obligations related to the provision of information to consumers at virtually every stage of the process. The financing institution as well as the credit intermediary and / or agent must show the loan parameters based on a representative example already at the product advertising stage. Therefore, the advertisement must include information on real interest rates. Later, during the application, the Customer must receive an information form, the scope of which is set out in Annex No. 1 to the Consumer Credit Act. The consumer also has the right to inspect the provisions of the contract, which must also be constructed in accordance with the Act.
The nominal interest rate is only the interest costs of the loan – i.e. WIBOR + bank’s margin. The actual interest rate includes both interest and all non-interest costs of the loan. If we compare credit and loan offers, we always look at real interest rates.
Information must be and important to use it
The consumer must receive information on the actual interest rate. Nowadays, it is practically impossible for anyone to try to conceal it from a customer using, for example, a very small font or not placing it at all. There may be a small fine imposed by the Polish Financial Supervision Authority for non-compliance with the provisions of the Act on the financing institution, broker and credit agent. It is important, however, that the consumer uses the information provided in the marketing materials, information form and provided by the Agent. The key in the process of applying for a loan is a choice of the offer that will be best suited to the client’s needs and financial possibilities.