The total cost of credit consists of the sum of all fees. They include both interest and non-interest charges.
One example of non-interest loan costs is the popular commission for granting it. Why do banks use a commission? How much is the commission? Is it possible to make the commission free?
Basics the cost of credit is the interest rate. It consists of the cost of obtaining money by the Bank (for loans in PLN expressed by the WIBOR coefficient) and the bank’s margin, reflecting the bank’s earnings on credit.
WIBOR is an indicator on which the bank has only indirect influence – it expresses the value at which banks borrow money. The margin, on the other hand, reflects the level of risk that the bank diagnosed on the transaction. The higher the loan security, the greater the Customer’s ability, the lower the margin.
Bank in search of profitability
The bank lends money to make money on it. There are many costs that an institution has to compensate – the cost of obtaining money, operating costs, possible costs of loss on the portfolio, costs of debt collection. Operating costs include all fees that the bank must pay to process the client.
They will include, for example, employee remuneration, customer verification costs in external databases IT system maintenance costs, costs of maintaining branches and the bank’s head office . There are a lot of costs and the bank will not always achieve full profitability by charging only the interest rate on the loan.
Withdrawal and early repayment
The Mortgage Act allows the customer to withdraw from the loan within 14 days of the commitment. The Act also says that the bank is required to allow the customer to repay early.
From the bank’s perspective, both withdrawal and early repayment, especially by a customer who was not late with the installment, will not be beneficial. Why? Because the bank had to incur operating costs to process the client.
If he withdraws, the bank will have to return all fees charged. So really lose on the transaction. In the event of early repayment, the bank does not refund the fees actually charged, but for this it loses the Customer, in which it could earn more in the long run.