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Loan interest rate – what does it consist of?

The interest rate on cash loans is one of the main parameters of the loan offer. It consists of a base rate (determined by the market) and a margin imposed by the bank and is a percentage measure of the cost that will be added to us in appropriate proportions to the monthly loan installments.

Loan interest rate – what is it?

Loan interest rate - what is it?

The mortgage interest rate consists of the same components (base + margin). The distinguishing feature, however, is the ability to negotiate the interest rate, which largely depends on the bank’s offer. Insofar as financial institutions have no influence on the amount of the base rate, they can negotiate with clients and lower the interest rate by leaving their margin.

This is because, in the case of mortgage loans, we also deal with other credit fees such as bridge insurance, low own contribution insurance, real estate valuation or civil law tax.

In Poland, the interest rate on loans can be fixed or variable. The first of them operates mainly with cash loans and short-term liabilities. Of course, you can also find a fixed-rate mortgage offer on the market, but they belong to a large minority. A loan with a fixed interest rate guarantees a constant interest rate, which affects the amount of the monthly installment.

In contrast, the variable interest rate is most often used for long-term liabilities and is only valid for a period of 3 months, i.e. until the next update. By choosing variable interest rates, the customer can gain a lot but also lose. At the time of signing the contract, there is no certainty as to how much the installments will pay in some time.

And what is the interest rate on loans for companies? The same as the interest rate on loans offered to individual customers. It consists of the same components, with the difference that the bank’s commission is very often determined individually for a specific customer.

Loan interest rate and APRC

Loan interest rate and APRC

Unfortunately, the lowest loan interest rate is not a guarantee of the best loan offer. Why? Here, the APRC, or Real Annual Interest Rate, comes into play.

Its task is to inform the client what the cost will be in connection with taking a loan. It expresses the annual percentage ratio of the total cost of credit to the sum we borrowed.

Unlike the interest rate, the APRC takes into account most of the fees associated with granting the loan. That is why a loan with a low-interest rate is not a guarantee of a low loan cost.

The interest rate on mortgage and cash loans

Although banks can in a sense determine the amount of interest on the loan themselves, regulating, for example, the level of the margin, they cannot exceed a certain magic threshold. The maximum interest rate on the loan has been specified and enshrined in the Civil Code and Anti-usury Act and may not be higher than 10% of the amount borrowed.

Cash loan interest rate

The interest rate on cash loans is usually unchanged throughout the duration of the contract. There are cases in which banks decide on variable interest rates, but most often it concerns loan agreements concluded for a period longer than 3 years.

In the case of cash loans, it is very difficult to know what the average interest rate is because we will find both offers with an interest rate of 4% and those offering a loan with an interest rate of 10% on the market.

Before signing a loan agreement, it is best to use a cash loan comparison website, which will quickly and easily allow us to compile the offers of most banks and check their interest rate.

You can also independently search for information on a particular offer, all you have to do is enter the bank’s name and the phrase: “loan interest” in the search engine.

Interest rate mortgage

We also looked at how mortgage rates in Poland look like. Most often, the interest rate on a home loan is much lower than for a cash loan. This is due to the fact that the mortgage belongs to long-term liabilities, which gives the bank more time to charge interest.

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