Commission, interest, insurance, valuation fee, etc. We have to pay a lot of costs when taking out a loan, which often makes it difficult to compare loan offers. APRC is one way to assess which loan is most advantageous. What to look for Is this the only way to compare loans?
Often in banks or loan companies we can find offers where the loan interest rate is 0%. This may suggest that since we pay no interest, the loan will be free.
Nothing could be more wrong
Because we almost always have to bear other costs. In such cases, it is necessary to pay a high commission for granting the loan, and it is often required to use insurance, which, even if we need it and provide good security, increase the cost of the loan. The combination of all these fees means that the loan is not free, although we do not pay any interest.
APRC – a way to compare
So how do you compare offers at different banks if their design is completely different? Is a better offer a loan without interest, but with a high commission, or is it better not to pay a commission, but to pay interest on the amount borrowed every month? The Real Annual Interest Rate (APRC), which each bank or loan institution must calculate and provide to the consumer, can be helpful in this comparison. APRC is a percentage recognition of all costs of the loan that we have to incur in connection with its taking and repayment.
Taking into account commission, interest, insurance costs as well as the time value of money, we receive information on the total cost of the loan. In this way, we can compare the offers of several institutions and we are sure that all costs are included in the calculations. If the bank requires an account, then the fees associated with running it will also be included in the APRC calculation.
What to look for when comparing the APRC?
Guided only by the amount of APRC when choosing an offer, we must pay attention to two issues. First, if we have to compare, for example, two offers, let’s check if the costs are calculated on the same assumptions. Are the loan amount and, above all, the repayment period identical? If we want to compare APY, then we must compare the same offers with the same assumptions.
Secondly, we must also remember that following only the APRC level and choosing the offer with the lowest value will only make sense if we pay back the loan or credit according to the planned schedule. If, after entering into an obligation, we overpay the loan or repay it in full, then the APRC calculations will become obsolete.
It may turn out that in the end
In this case, it may turn out that in the end, the loan that had the original APRC at a higher level will be cheaper. This often happens if we took out a loan with a higher interest rate but with a low commission. Then, after early repayment, the loan that was supposed to be more expensive (e.g. due to higher interest rates) becomes cheaper due to earlier, early repayment.
When choosing a loan, compare the APRC, but we do not treat this indicator as the only cost indicator. We must remember that this rate is determined on certain assumptions, which may change during the repayment, which will translate into changes in the cost of the loan.