When taking out an installment loan from a loan company (also a bank loan), you should take into account the costs. These will be added to the monthly installment and affect its amount. The costs should not come as a surprise, because the financial institution actually lends us capital, for which it charges a fee. However, the amount of this fee is important and how it will translate into the amount of the monthly installment. Fortunately, this can be calculated quickly using the loan calculator. If you look more closely at such a calculator, you will quickly notice that in addition to the installment amount, it also calculates the costs that affect the monthly commitment. Most often it is:
Nominal interest rate (interest)
We borrow capital, but the installment usually includes interest rate. This parameter shows what proportion of the installment is the interest element. By the way, it is worth recalling that the interest rate on the loan cannot be higher than four times the NBP lombard rate.
This is the fee charged by the lender for granting the loan and performing all activities related to this process. Sometimes, instead of the term ‘commission’, there is a ‘preparation fee’, but it’s usually the same thing. In banks, the commission is often charged immediately when signing the contract, while loan companies usually add it to the monthly loan installments.
Depending on the loan company, other costs may also arise. Most often they are connected with the need to take out insurance (in the case of Eugenio Esme loan there is no such fee).
Real interest rate
It is the Actual Annual Interest Rate (APRC). This indicator shows all the costs of the loan when added up.
Loan calculator, or how much does it cost to borrow money?
Since we already know what parameters the loan calculator shows, it is now worth showing in practice how such a tool works. We will use the example of a calculator that can be found on the Eugenio Esme website.
Before the calculator shows us any result, you must enter the appropriate data. Most often this is done using intuitive sliders. The first one is used to specify the amount you want to borrow. You can choose between the minimum and maximum amount (e.g. Eugenio Esme can borrow from $ 1,000 to $ 10,000, and up to $ 15,000 is available for regular customers).
The next step is choosing the repayment period of the installment loan. Usually you can choose from several months to several years (in Eugenio Esme we borrow money for a period of 4 to 48 installments). You should stay here longer. Depending on the repayment period you choose, the loan installment will be larger or smaller. That’s why you should think it over carefully. In the rest of the article we will come back to this issue. It should also be mentioned here that depending on how we set both sliders, the parameters we wrote about earlier will change – installment amount, interest, commission, APRC. For example, if you decide to borrow $ 10,000 for 36 installments, your monthly commitment in Eugenio Esme will be $ 508.63. After extending the repayment period to 48 months, the loan installment decreases to the level of $ 422.20.