The total cost of the loan consists of interest, commissions, life insurance costs, e.g. in the event of incapacity for work, serious illness, job loss, and various types of administrative fees.
Taken together, they cause the total borrower’s total cost of credit to increase. When concluding a loan agreement, it is worth knowing what costs, apart from interest, we will pay back and what is included in the total loan costs.
Total cost of credit – interest and non-interest costs
The definition of the total cost of credit is included in art. 5 point 6 of the Act of 16 May 2019 on consumer credit (i.e. of 16 May 2019, Journal of Laws, item 1083, as amended), which indicates that these are all costs that the consumer is obliged to bear in connection with the loan agreement . I am talking in particular about:
- interest, fees, commissions, taxes and margins , if known to the lender and
- costs of additional services , in particular insurance, where it is necessary to obtain a loan or to obtain it on the terms offered.
Therefore, we can say that the total cost of the loan consists of interest costs and non-interest costs . We discuss them in more detail below.
The interest is calculated on the amount of the loan taken out, more precisely on its gross amount, based on the interest rate specified in the loan agreement.
The institution granting you the loan cannot, however, freely determine the interest rate because the maximum amount of interest is specified in art. 359 of the Civil Code.
Commissions and fees
Commissions and fees cover the costs that the lender incurs in connection with the performance of specific activities when granting the loan , e.g. customer verification in databases. There are situations, however, that at zero interest on a loan, the commission is the lender’s sole remuneration.
The amount of commissions and fees depends on the table of fees and the price list of a particular bank or loan company. They can be a specific sum , e.g. USD 160 for inspecting real estate, or have a percentage value , e.g. a handling fee of 1%, which is calculated from the sum of amounts repaid before the payment date.
For example, the bank may charge a commission for the loan granted, among others for :
- granting a loan,
- issuing a promise of credit,
- increasing the loan amount,
- change the loan currency,
- early repayment of the entire loan (so-called handling fee),
- extending the loan period (so-called extension),
- Annex to the credit agreement concluded,
- issuing at the borrower’s request all documents based on credit documentation and the bank’s books,
- change in the currency in which the indexed loan is repaid.
Additional services costs
Other costs that the borrower is obliged to pay in connection with the conclusion of the loan agreement may be incurred, among others due to:
- establishing a mortgage,
- establishing a claim for the transfer of the bank’s mortgage to the emptied (by another mortgage) first place,
- conducting property inspections,
- land and mortgage register research,
- additional examination of the land and mortgage register, e.g. if the borrower fails to submit an extract from the land and mortgage register with a valid mortgage entry to the bank within the set deadline and / or a claim to transfer the bank’s mortgage to the vacated first place (by another mortgage),
- internal verification of the value of legal collateral,
- real estate insurance against fire and other random events,
- borrower’s life insurance,
- changes in the loan currency,
- increase in the loan amount.