In today’s text we will focus on the answer to the question of what are the so-called non-interest loan costs and is it possible to reduce them?
One of the most important elements that we pay attention to when choosing a loan is the cost of commitment. Few customers, however, are aware of what makes up the final price of the service and what to watch out for in order to get the most out of it.
The loan industry is growing at a dizzying pace, and companies are fighting for customers, including by reducing interest rates, promotional offers and the best quality of service. However, every consumer knows that most of this type of activity is nothing more than marketing, and the financial institution will earn a lot from the transaction.
According to reports, Poles are indebted to power. However, the growing interest in the services of banks, and even more so non-banking institutions, is followed by an increasingly modern offer that meets the requirements, expectations and, above all, the possibilities of the clients. The loan agreement can certainly be called a win-to-win transaction, i.e. one in which either party wins. The borrower receives an additional injection of cash, which very often is even the last resort, and the lender earns from conducting the operation, risking his capital.
What is interest?
Banks and non-bank companies earn mainly on interest, which is determined in principle on the basis of the amount of borrowed funds. In the dictionary version, interest is the cost charged for using borrowed capital to its owner. Therefore, for the creditor they are a kind of reward for the borrowing risk incurred. The measure of these costs, taking into account the unit of capital and the annual useful life, is the so-called the interest rate that certainly every consumer has heard of.
What affects the amount of interest?
First of all, the basic parameters of the commitment itself. Each financial entity operates individually in this respect. Most often the capital, loan period, risk and all loan collateral are taken into account. The law does not specify a minimum amount of interest. The reverse is, however, with a maximum limit, which is regulated, among others, by banking law and all anti-usury laws. You can read about the details in the article entitled Anti-usury Act – what is worth knowing?
Non-interest loan costs – what are we talking about?
We already know what interest is, so it’s time to focus on the more mysterious concept of ‘non-interest costs’. Simply put, we mean all fees that the borrower pays in connection with the bank or non-bank entity’s commitment. Colloquially, we call it such as commission, margin, preparation fee, etc. In the 2015 statutory provisions you can find a definition that non-interest costs are all amounts that the consumer regulates because he has decided to use the lender’s offer. Both interest and non-interest costs are included in the so-called APRC, i.e. the Real Annual Interest Rate, which reflects the actual expenditure related to taking out a given credit or loan. It is worth adding, however, that APRC for individual products should be compared only in one benefit group. Short-term loans granted for several months will have a much higher percentage per year than, e.g. long-term consumer credit. Only then will this indicator be fairly reliable and authoritative.
Non-interest loan costs and the Act
Seven years ago, the Polish legislator lifted restrictions on non-interest costs. Until 2011, they could not exceed 5% of the total liability. After changing the regulations, however, financial institutions have full freedom in this area. Needless to say, many of them took advantage of the new opportunities, which led to numerous abuses and the bankruptcy of borrowers who were unable to fight the huge costs. In extreme cases, clients used subsequent benefits to pay off their previous payments. However, this did not end the matter, on the contrary – the debt increased, and the possibilities of its repayment, at extremely high costs, decreased. We write more about the loop debtors may fall into in the article How to avoid a spiral of debt?
Maximum non-interest loan costs – new regulations
Fortunately, the legislator came to the conclusion that the lack of a spread is not the best solution for customers. Two years ago, it was decided to implement the draft of new regulations, called the anti-usury act. It regulated the issue of the maximum amount of fees by introducing a two-stage limit for non-interest costs. The regulations stipulate that they may not be more than 25% of the basic amount of the liability, and on an annual basis the value may not exceed 30% of the total capital. In addition, there was a clause in the records prohibiting one consumer from being charged total costs equal to 100% of all benefits. Therefore, non-interest costs of consumer credit and other loans taken out of non-bank companies cannot amount to more than borrowed capital. It is a good principle that combats destructive tendencies of many customers.
Refund of non-interest charges?
While interest is usually added to each loan installment, non-interest costs should usually be paid once. Speech incl. on the price for drawing up the contract, the details of which are described in more detail in the text What is the preparation fee? However, it turns out that there are costs that are reimbursable under the right circumstances. This is determined by the provisions on consumer credit law and related acts. For example, a commission, insurance or even administrative fee, which, as is clear from the position of the President of the Office of Competition and Consumer Protection and the Financial Ombudsman, is repayable when the borrower repays the liability before the date specified in the contract. According to the interpretation of the regulations, these costs are only related to the period during which the consumer is in possession of the borrowed funds.
Ignorance of the law is harmful
Before signing the contract, it is worth familiarizing yourself thoroughly with non-interest costs. They constitute the main expense for the loan. Lack of knowledge about them may cost the client a lot. For your own good, check the contract carefully for commissions and all fees that are not interest, and in exceptional cases ask your Customer Service. Let’s also remember that the best solution to sleep peacefully is to use proven companies.