The terms total loan amount and total loan cost are often mistakenly equated. Below you will find an explanation of both concepts and how they are calculated.
What is the total loan amount?
Pursuant to the Consumer Credit Act, the total loan amount is the amount that we will actually receive from the bank, based on the credit agreement concluded earlier. It is good to know that it does not include credit costs. This means that the total loan amount does not include the loan capital, which is used to finance the costs incurred when taking out the loan. It is good to know that non-interest loan costs (i.e. all costs that the consumer incurs in connection with the consumer loan agreement, excluding interest) cannot be higher than the total amount of the loan.
What is the total cost of the loan?
The Consumer Credit Act indicates that the total cost of credit is all the costs that we are required to incur in connection with the credit agreement (except for notary fees incurred by the consumer).
What makes up the total cost of the loan?
The total cost of consumer credit may include the following:
- interest, fees, commissions, taxes and margins if known to the lender – interest is usually an essential element of the loan. The loan interest rate can be fixed or variable. It is worth knowing that the interest rate on the loan, which is set by each bank on an annual basis, may not exceed the statutory maximum interest rate, which is currently equal to twice the reference sum of the bank and 3.5 percentage points. Installments can be fixed, decreasing or increasing.
- all types of commissions, such as preparation commission or loan payment fee, can also be included in the total loan basket.
- costs of additional services, including credit insurance, if they are necessary to obtain a loan or to obtain it on the terms offered. Credit insurance may be a form of security for a financial institution. Does not appear in all loans.
Notary fees which we must pay in connection with applying for a loan are not included in the total cost of the loan.
As a standard, the above fees contribute to the total cost of the loan if you apply for a consumer loan, e.g. a cash loan.
Mortgage costs may also include a valuation or estimation of the value of the property and a tax on civil law transactions. Notary fees and court fees incurred by the consumer are not included in the total cost of the mortgage.