Fine Bank Credit is currently the most frequently discussed issue regarding non-bank loans. The law imposes on lending institutions the obligation to provide relevant information on the level of this indicator, both in loan calculators available on the company’s websites and in advertisements. Meanwhile, the Fine Bank Credit is still for the average borrower (and even more so for the person who has not taken loans yet) quite vague, incomprehensible and inadequate to what the potential borrower would like to know. So what is the Fine Bank Credit and how can it be used to broaden financial knowledge?

Annual Real Interest Rate – what is it for?

The Fine Bank Credit is actually the amount of interest on the loan or borrowing that the borrower will have to pay. This indicator includes all fees that the loan company client must take into account. These include: interest, commission, administrative fees, additional fees and even the costs of extending the financing period. You can read what these fees are and why they are charged in the article ‘ Fees, commissions, interest – everything about the cost of a loan’.

Fine Bank Credit is not the total cost of the loan

The aforementioned components, however, are not everything that the Fine Bank Credit takes into account. First, it also includes such abstract factors as the time value of money. This indicator is very problematic because it mainly means how much money is available throughout the repayment period. It is known that at the time of repayment of installments, it will be smaller and smaller, because by giving back money each time we reduce the capital amount on which interest is calculated. Later, the monthly average amount is available. The actual amount of interest will therefore be in percentage (but not in amounts) less than the value of this factor in the Fine Bank Credit would indicate.

Secondly, the key word is ‘annual’. In this case, you have to reckon with the fact that the Fine Bank Credit simply means how much money the customer would have to give back if the loan’s financing period was one year. In the case of a payday loan or even an installment loan with a financing period of less than a year, this indicator may not say anything.

A lower Fine Bank Credit is not always a cheaper loan

Therefore, the Fine Bank Credit is quite a virtual value, created more for the needs of banks and legislators than for the needs of borrowers. Assuming the value of Fine Bank Credit applicable to a given loan and comparing it with Fine Bank Credit of another one, one should not look zero-one and in terms of “smaller / larger”. You have to keep in mind the repayment schedule, repayment period and loan amount. What’s more, it often happens that the Fine Bank Credit is identical for loans with completely different parameters! Hence, the total costs will also be different – a more expensive loan may therefore have the same Fine Bank Credit as a cheaper one.

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