What to learn on cash loan interest rate?
February 16, 2020
What is the interest rate on cash loans? How much can the interest rate on a cash loan be? Loan interest rate and APRC Interest rate on cash and housing loans
What is the interest rate on cash loans?
The bank grants loans to its clients to earn on the loan services offered. Therefore, every loan costs and the basic component of such cost is interest. It can also be said that the interest rate on a cash loan is its price. This is the basic cost of repaying the liability to the bank.
At the same time, the interest rate on the loan determines the amount of interest the customer will have to pay when paying back the loan’s principal and interest installments, or how much the entire sum will be in the event of a one-off repayment.
How much can the interest rate on a cash loan be?
It is not possible for the bank to determine the interest rate on cash loans in any manner. The interest rate on cash loans is regulated by law. Please refer to the provisions of the Act of 12 May 2011 on consumer credit and the Civil Code. Pursuant to statutory provisions, the maximum interest rate on a cash loan, including a cash loan, may not exceed twice the statutory interest rate.
These, in turn, are equal to the sum of the reference rate of the Good Finance and the rate of 3.5 percentage points. Currently, when the GFI reference rate is 1.5 percent, banks can grant cash loans with an interest rate of no more than 10 percent. per year. Similar rules apply to loan companies that provide non-bank loans online to their clients.
Do you know that…?
The nominal interest rate of a cash loan is not the only cost borne by the borrower. You should be aware that banks may also charge non-interest costs, including commission, preparation fee, insurance premiums required as collateral, etc. The Consumer Credit Act, which includes a cash loan definition, assumes that the maximum amount of non-interest loan costs may not exceed:
– 25% total loan amount,
– 30% total loan amount in each repayment year (the part depends on the length of the loan period).
Loan interest rate and APRC
Very often, when comparing cash loan offers with various banks, customers only pay attention to the interest rate. In promotional offers, it may be lower than 10 percent. per year – even significantly, which does not mean that it is the cheapest loan that the customer can use on the financial market in Poland.
The full loan cost is not indicated by the parameter, which is the interest rate on cash loans, but the APRC – the actual annual interest rate. The APRC shows the real cost of the loan after taking into account the nominal interest rate and any non-interest costs, including the change in the time value of money.
Therefore, when comparing loan offers, you need to pay attention to the APRC of the loan, because the low-interest rate does not mean the cheapest offer.
The interest rate on cash and housing loans
Cash and mortgage rates have slightly different characters. The interest rate on cash loans is much higher, but the loan is also taken for a shorter time, which means that the bank is able to earn less on it than on long-term repayment of a lower-interest mortgage.
The lower mortgage interest rate is also due to the fact that it is a liability better secured by a mortgage established on a residential property and additional security, such as real estate and life insurance.
The method of calculating the interest rate on cash and mortgage loans is also different. In the case of a cash loan, it depends on the reference rate of Good Finance and is permanent during the loan period.
Mortgage, the interest rate is usually variable and is based on two components: the GFIC base rate, e.g. 3M, and the bank’s margin, which is negotiable with the lender.
The interest rate on a cash loan is the cost incurred by the customer incurring such liability as part of the monthly principal and interest installments.