Quite often, we plan to take a loan, we note the posters of organizations that offer this service. After attracting a favorable interest rate, customers are very surprised to find out how much the total cost of the loan is.
The interest rate is not exactly what to get a contract. The amount of overpayment often includes paperwork costs and various commissions. What then does the total cost of the loan consist of? What is it and how to calculate the amount of overpayment? Let’s try to understand this problem.
What is CPM?
So what is the total cost of the loan? The definition tells us that this term summarizes all probable payments and monthly loan repayments. Under Russian legislation, this amount should appear on the first page of the credit 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 banner should occupy at least 5% of the total page area. So if you see large numbers enclosed in a black square box when signing the contract – these are the full cost of the loan. What it is, in simple words, can be explained as follows.
This is the total amount you pay as a result of the conclusion of the loan agreement. Includes interest, commissions, lump sums, payments to third parties and so on.
Where does this concept come from?
The only reason why such a thing appeared misuse of individual financial institutions. They concluded that promising customers attractively low-interest rates, banks “forgot” to say about all the related costs that were due under the contract. The presence of additional payments can offset the low interest so much that it will have no value at all.
The negative side of these loans to the client is impossible to realistically assess the prospect and calculate the strength of debt repayment. Unfortunately, this may end. 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 debtor suffers.
Of course, before open fraud is not yet coming – all terms and overpayments are explicitly stated in the contract. But not all citizens have a sufficient level of education to understand its complexity without the help of a lawyer and economist. All this led to the government passing an act in 2013 requiring all financial institutions to notify clients of such an indicator as the total cost of the loan.
We hope you understand what it is. Let’s talk about where to find and how to calculate this indicator independently.
How to determine the full cost of credit?
As already mentioned, such information must be in the public domain. You can ask the manager directly, “What is the full cost of the loan?” You already know what you have and where to look. Just look at the first page of the contract. If you haven’t seen the right number in the right place, there is reason to wonder if something is hidden from you. The honorary bank does not hide the amount of CPM. This proves the “purity” of the projects and at the same time creates a positive image of the institution on 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 CPM?
Not all amounts paid by the client are used to calculate the actual rate. The loan calculation (calculator is useful for you) can include the following parameters:
- the frequency (periodicity) of repayment of the loan;
- payments for cash management services;
- interest payment;
- payment to 3 persons whose services are required to issue a cash loan;
- commission (fee) for examining an application or issuing a loan;
- the cost of issuing a credit card or electronic payment instrument that is due upon conclusion of the agreement
- payment for opening a current account.
In this case, the third may be considered:
- insurance company;
Since the credit agreement was concluded for several years, it is quite difficult to predict what the rates of third parties will be after a while, while calculating the full amount of the loan will use the rates that exist at the time of signing the contract.
What is not included?
It should be noted that far from any payments related to obtaining a loan can be taken into account when calculating CPM. The exception is:
- Expenditure that is not charged in terms of loans but legal.
- Payment of fines and fines for failure to comply with the terms of the credit agreement.
- Commissions are available in the contract and depending on the client’s behavior.
The last item may contain the following items:
- Punishment for early repayment of the loan.
- ATM withdrawal fee. Some banks distribute money only by transferring to a debit card. At the same time, if you try to withdraw all or part of an amount at an ATM that is not native, you will be charged an additional percentage.
- Fee for providing information about the amount of debt via SMS or e-mail.
- Commission fee for operations in a currency other than the one in which the loan was issued. For example, if you have a ruble credit card and made a purchase in a Japanese online store.
- A commission charged by the Bank for crediting funds received from another credit institution.
- Payment for the possibility of suspension of banking operations (card blocking).
The exact calculation of this indicator is basically impossible, as it all depends on whether the original conditions of the loan were met, to the smallest detail. The Bank of Russia’s CPM calculation instruction suggests such a complicated formula that even every bank employee is unable to calculate everything correctly for the first time. What can we say about ordinary people?
In this article, we offer a much simpler (albeit quite rough) loan calculation. You’ll still need a calculator, but the calculation won’t take too long. Formula: PSK = SKr + SK + P, where:
- SKR – loan amount (loan);
- SK – a value of all commissions both once and periodically;
- P – interest rate;
- CPM – the total (total) cost of the loan.
All data in this formula is expressed in kind in a calculation, or rather, in the currency of the loan. The total amount of commissions is calculated by adding up all known values for the entire contract period. The amount of the total repayment of the% rate is stated in the repayment schedule. It must be provided by the bank.