We shed some light on the issue of credit costs and loan interest rates. Learn how credit costs affect.
Anyone who borrows money from the bank will receive a loan, which must be repaid to the bank at a later date with interest. Interest is the biggest cost factor in a loan, but not the only one: The costs of a loan include, for example, commissions, provision interest as well as permissible processing fees and closing fees. Here you can find out what a loan costs in total and what to look out for.
How much does a loan cost?
A loan has several fees, which are referred to as credit costs or ancillary loan costs. The total cost incurred by borrowers also depends on the type of loan.
- Debit interest is usually the biggest cost item.
- Credit institutions may charge permissible processing or closing fees, for example in a building savings contract.
- A brokerage commission is incurred when loan intermediaries are involved.
- Construction loans are subject to provision interest.
Borrowing rate vs. APR
The borrowing rate – also known as nominal interest rate – indicates the interest rate on a loan per calendar year. Often the note p.a., i.e. per annum, is included. Other costs incurred by borrowers in addition to the pure interest payments for the loan are not included in the borrowing rate.
On the other hand, the APR, which is also called the effective interest rate, includes all ancillary costs of the loan. The APR adds up these fees and adds up to one year. In order to compare loans, the effective interest rate should therefore always be considered.
Inadmissible and permissible processing fees
Processing fees for loans are costs that banks charge for granting a loan. Most of the processing fees are inadmissible for consumer and corporate loans. However, there are exceptions:
In certain cases, credit providers may charge a processing fee on real estate loans. This includes, for example, California DSCR Loan. A closing fee is also permitted for building savings contracts.
Mediation commission briefly explained
A brokerage commission is the remuneration for the commercial brokerage of loans. Credit intermediaries or specialized online platforms receive a commission from the financing credit institution – which is paid by the borrowers. The intermediary commission is usually between 0.5 and one percent of the loan amount. Credit intermediation is strictly regulated.
Amount and definition of provision interest
Provision interest is interest that the credit institution charges on parts of the construction loan that have not yet been called up. Because a house construction takes place from the purchase of land to the handover of the keys in several stages in which different sums of money have to be paid.
Provision interest only accrues after the provision-free period, which is contractually agreed. The amount of interest is not fixed at a flat rate, but it averages 0.25 percent per month, i.e. three percent per year.
Good to know: Playing through numbers with loan calculators
If you want to take out a loan, whether for a car, a trip or a property, it is worth comparing different loan offers from banks and financial service providers in advance. Online loan calculators can help with this, with which you get a sense of which loan amount would have to be paid off with how high installments and how long and how expensive it would be overall. In addition, the online tools list all potential credit costs.
It’s worth comparing credit costs
If you want to apply for a loan from a bank, it costs money – more than the pure borrowing rate on the loan amount. Although these account for the largest cost point, there is also, for example, a brokerage commission, provision interest and permissible processing or closing fees. So before you conclude a loan agreement, you should inform yourself in detail in advance about the actual amount of the loan costs and compare providers accordingly.