The effective interest rate represents the actual overpayment for a bank loan. Unlike the interest rate established for the loan, it includes various commissions, fines, penalties, insurance payments.
Instructions
Step 1
When applying to a bank for a loan, a client first of all pays attention to the interest rate that is offered to him for certain types of loans. Often, preference is given to the credit institution where the stated loan fee is lower. However, most potential borrowers do not take into account that in addition to interest, they will have to pay quite large amounts of commission, fines, and insurance to the bank.
Step 2
In accordance with Russian law, the effective interest rate must be specified in the contract. In addition, the loan officer is obliged to inform the client about the available payments on the loan, in addition to interest. These can be commissions for opening and maintaining a loan account, for considering an application, for supporting a transaction, evaluating collateral, insurance payments on collateral, penalties for early repayment and for untimely repayment of principal and interest, etc. All this will be included in the calculation of the effective interest rates.
Step 3
In addition, the size of the effective interest rate will depend on the method of repayment of the loan (annuity, that is, equal or differentiated, that is, decreasing payments), the order of repayment of the principal debt (once a month, quarter or at the end of the loan term), the frequency of payment of the commission (one-time before the issuance of a loan or monthly).
Step 4
As a rule, the effective interest rate is calculated using the "Loan calculator" program, independently or with the help of a bank employee who is obliged to provide such information.
Step 5
If there is no opportunity to use the program, the real interest rate on the loan can be determined independently. To do this, you need to pay the loan, including interest and principal, then multiply it by the loan term. As a result, you get the amount that the borrower is obliged to return to the bank. If we subtract the initial amount of the debt from it, then we will find the overpayment for the loan for the entire period. It is necessary to add insurance sums, commissions, fines, and penalties to it. This will be the full amount of the loan payments. If it is divided by the amount of the principal debt and multiplied by 100 percent, then you get the desired value - the effective interest rate.
