Quite often, when planning to take a loan, we pay attention to the advertising posters of organizations offering such a service. Flattered by the favorable interest rate, customers are very surprised when they find out how much the total cost of the loan is.
The interest rate is not exactly what you get when you draw up the contract. The overpayment amount most often also includes the cost of paperwork and various commissions. So what does the full cost of a loan consist of? What is it and how to correctly calculate the amount of overpayment? Let's try to figure this out.
What is UCS?
So, what does the total cost of a loan consist of ? The definition tells us that this term summarizes all probable payments and monthly loan payments. According to Russian law, this amount should be indicated on the first page of the loan agreement, or rather, in the upper right corner. The information should be surrounded by a square frame and printed in the largest font that can be used in this case. The inscription should occupy at least 5% of the entire page area. So if, when signing the contract, you see large numbers enclosed in a black square frame, this is the full cost of the loan. What is it, in simple words can be explained as follows. This is the whole amount that you will pay as a result when you make a loan agreement. It includes interest, commissions, one-time contributions, payment in favor of third parties and so on.
Where did this concept come from?
The only reason for the emergence of such a concept can be considered the abuse of individual financial institutions. They consisted in the fact that, promising customers attractively low interest rates, banks “forgot” to tell about all the associated costs that relied on the contract. The presence of additional payments can so level out a low percentage that it will not have any significance at all.
The negative side of such a loan is the inability of the client to really assess the prospect and calculate their strength in paying off the debt. It can end sadly. A client who is unable to pay huge amounts is forced to resort to debt restructuring. At the same time, the credit history of the borrower suffers.
Of course, it doesn’t even come to open fraud - all the conditions and overpayments are openly stated in the contract. But not all citizens have a sufficient level of education to understand his intricacies without the help of a lawyer and economist. All this led to the fact that in 2013 the government passed a law obliging all financial institutions to bring to the attention of customers such an indicator as the total cost of the loan.
What is it you hopefully understood. Now let's talk about where it can be found out and how to independently calculate this indicator.
How to find out the full cost of a loan?
As already mentioned, such information must be in the public domain. You can directly ask the manager: "What is the total cost of the loan?" What it is and where to look, you already know. So you can just look at the first page of the contract. If you did not see the desired number in the right place, there is reason to think about whether they are hiding something from you. An honest bank does not withhold the amount of CPM. This demonstrates the "purity" of intentions, and also forms a positive image of the institution in the financial market.
To understand how to calculate the full cost of a loan, you need to know what is taken into account in the calculation and what is not taken into account.
What is included in the CPM?
Not all the amounts paid by the client are used to calculate the real rate. Loan calculation (a calculator will come in handy for you) may include the following parameters:
- frequency (periodicity) of loan repayment;
- payments for cash management services;
- interest payment;
- payment in favor of 3 persons whose services are required to issue a cash loan;
- commission (fee) for considering an application or issuing a loan;
- the cost of issuing a payment card or electronic payment instrument, which is due at the conclusion of the contract;
- payment for opening a current account.
Third parties in this case may be considered:
- developers;
- appraiser;
- notary;
- insurance company;
Since when concluding a loan agreement for a period of several years, it is quite difficult to predict what the rates of third parties will be after a while, in calculating the full amount of the loan, those that exist at the time of signing the agreement are used.
What is not included there?
It is worth knowing that far from all payments related to obtaining a loan can be taken into account when calculating the CPM. The exception is:
- Expenses not accounted for in terms of lending, but statutory.
- Payment of fines and penalties for failure to fulfill the terms of the loan agreement.
- Commissions available in the contract and depending on the behavior of the client.
The last item may include the following:
- Penalty for early repayment of a loan.
- ATM withdrawal fee. Some banks give out money only by transfer to a debit card. At the same time, if you try to withdraw all or part of the amount at a non-native ATM, you will be charged an additional percentage.
- Fee for providing information on the amount of debt via SMS or e-mail.
- Commission fee for conducting operations in a currency different from the one in which the loan was issued. For example, if you have a ruble credit card, and you made a purchase in a Japanese online store.
- Commission charged by the bank for crediting funds received from another credit institution.
- Payment for the opportunity to suspend banking operations (card blocking).
Formula
An exact calculation of this indicator is in principle impossible, since it all depends on whether the original lending conditions were met, down to the smallest detail. An instruction of the Bank of Russia for calculating CPM suggests such a complicated formula that not even every bank employee is able to correctly calculate everything the first time. What can we say about ordinary people.
In this article, we offer a much simpler (albeit rather rough) calculation of the loan. You will still need a calculator, but the calculation will not take much time. So, the formula: PSK = SKr + SK + P, where:
- SKR - the amount of the loan (loan);
- SK - the value of all commissions both one-time and periodic;
- P - interest rate;
- CPM - the full (total) cost of the loan.
All data in this formula are expressed in physical terms, or rather, in the currency of the loan. The total amount of commissions is calculated by adding all the known values for the full period of the contract. The amount of the total repayment of the% rate can be found in the payment schedule. It must be provided by the bank.
Example of calculating the total cost of a loan
Let's see in practice how the full cost of a loan is calculated. Example:
- loan in the amount of 320 e. for 3 years at an annual rate of 16%;
- commission for granting a loan - 2%;
- payment for cash services - 1.2%.
First you need to determine the amount of basic interest, it can be seen in the loan agreement. In our case, with the annuity method of payments, the amount of overpayment will be 85. e.
We consider the size of the commission for issuing: 320 at. e. * 2% = 6.4 oz. e.
Now we find out how much the commission for cash services will be: (320 cu + 82 cu) * 1.2% = 4.86 cu. e.
After all calculations, you can determine the entire amount: 320 at. e. + 85 y. e. + 6.4 oz e. + 4.86 y. e. = 416.26 y. e.
In general, nothing complicated. Of course, this is not the whole amount up to a penny, which will come out when calculating according to the complex formula proposed by the state. But the differences will not be too significant. For more accurate calculations, you can use various credit calculators, abundantly posted on the Internet.
What does the analysis of the CPM indicator give?
Realization of the full cost of a loan first of all gives a clear idea of the real amount of the overpayment when repaying a loan. Thus, with seemingly equal interest rates, you can choose the banking product that is cheaper. True, do not forget that the estimate of the CPM does not take into account quite a few factors - in practice, everything may turn out differently than in the calculations.
For example, a person can find funds and repay a loan ahead of schedule. In this case, the amount of overpayment will be significantly reduced. But it can come out differently. Failure to comply with the terms of the contract may lead to the application of penalties, which will many times increase the amount of overpayment. Therefore, when choosing a banking product, you should not rely on the limit values of the total cost of the loan, you should try to consider all options.
State control over settlements
One of the important functions of the Central Bank is to monitor other financial institutions. The purpose of such attention is to ensure that banks do not abuse their influence and do not overstate interest rates. In this regard, the Central Bank collects the necessary information on a quarterly basis and publishes the average market values of the credit rating for various types of lending. All credit institutions are required to take these indicators into account. To offer conditions under which the total cost of the loan will exceed the average market by more than 1/3, banks are not eligible.
CPMs announced to central banks are indeed average. After all, they are miscalculated on the basis of information received from at least 100 major creditors or 1/3 of all financial institutions in the country that provide any particular loan product.