Banks primarily earn loans to customers of all kinds, including cash loans. They provide borrowers who meet the conditions of creditworthiness and financial credibility with cash loans for a specified period of time, at the same time charging appropriate fees. What costs of cash loans will the customer incur?
The basis is interest
Every cash loan granted by the bank will earn interest. The interest accrued on the capital made available to the borrower by the bank will be calculated according to the interest rate adopted in the credit agreement. The interest rate on a cash loan can be variable or permanent. It usually consists of two components – the bank’s margin and the VBR rate, depending on the situation on the financial market. The VBR rate and its amount are influenced by the activities carried out by the Monetary Policy Council. The low VBR rate is the result of setting very low key interest rates by the MPC. The council also affects the maximum interest rate on loans and advances on the banking market. According to the anti-usury law, a cash loan, like other credit obligations, can not have a higher interest rate than four times the lombard rate. At present, this rate is only 4%, so loans can bear interest at a maximum of 16% per annum.
In turn, the amount of the bank margin affecting significantly the amount of interest on cash loans is determined during negotiations with the client. The lower the margin the customer sets in the loan agreement, the less interest will be repaid on his loan.
Other credit costs
Interest on a cash loan is not the only cost that the borrower incurs in the event of such an obligation. He must take into account that he may be required to pay a commission for joining the loan. Such commission is calculated as a percentage of the total loan amount. Additional fees may involve establishing a loan security or paying a loan repayment insurance premium, if the client decides to buy a policy or is obliged by the bank to do so.