A cash loan allows you to finance any purpose for which you lack money. It should be remembered, however, that using this type of support, we will be obliged to return both borrowed funds and incur costs related to the commitment. The value of the APRC and the interest rate on cash loans will tell us a lot about their amount. What is the APRC and how it differs from the interest rate?
What is the APRC?
APRC is an abbreviation of Actual Annual Interest Rate, which is the total cost of credit borne by the consumer, expressed as a percentage of the total loan amount per annum. Providing the APRC value is the statutory obligation of banks, which includes all foreseeable and definable fees incurred by the consumer signing the cash loan agreement with the bank.
The APRC includes fees that characterize all cash loans. They can be:
- interest costs,
- preparation fee,
- application processing fee,
- and the cost of additional services.
On the other hand, the APRC does not include fees that cannot be estimated from the top, such as the cost of maintaining a bank account, using the card, or notary fees.
Interest rate or APRC? – often confused concepts
Some people who reach for a cash loan confuse the interest rate on the loan with the Real Annual Interest Rate as synonymous. This is a mistake that may cause a wrong interpretation of the bank’s offer. These concepts are not the same. The APRC expresses the total cost of the loan and the interest rate only one of the costs that make up the whole.
What is the interest rate on cash loans?
The interest rate on the loan is nothing but an indicator expressed as a percentage showing the cost of interest on the loan per annum. The interest rate is accrued over the entire loan period from the capital remaining after repayment of each subsequent installment. For example, a loan granted for the amount of 2 thousand. USD for 12 months in the first installment will have e.g. USD 180 of capital and USD 40 of interest. After the repayment of this installment, the subsequent interest will count on the amount of capital reduced by the repaid part of the capital, and this means that the interest part will be smaller and smaller.
We can distinguish two ways of presenting interest:
- nominal interest, i.e. a fixed rate of 7.99%, which already includes all the cost and income elements of the Bank, and the premises for changing this interest rate during the term of the Loan Agreement are included in it or in the Regulations. Such interest rate dominates in cash loan contracts.
- interest rate based on a reference rate, e.g. interest and margin. Simply put, the interest indicator illustrates the cost of money that the Bank lends to the borrower, while the margin is the Bank’s income. The bank has no influence on the reference rate because it is set by the National Bank. The design of the reference indicator and margin is mainly used in long-term contracts such as mortgage credit / loan.
The loan interest rate can be fixed or variable. The interest rate constant means that the Bank undertakes that it will not change the loan interest rate throughout the loan period. In the case of variable interest rates, the premises for a change, depending on the model used, may be included in the provisions of the Agreement / Regulations, or this change may follow the reference indicator, i.e. for the interest model + margin. When looking for a tailored financial solution, it is worth considering this element, especially when we are moving in a world of low interest rates.
Is it worth negotiating the interest rate on the loan
The interest rate on the loan is nothing more than the cost of the loan and has a direct impact on the amount of the installment paid. In a world of high competition, Banks are willing to lower the interest rate / margin. This desire may be the greater the better the client profile from the point of view of risk assessment we are.
Therefore, before concluding the Agreement, it is worth doing market research and being prepared for negotiations. It should be remembered that in addition to interest, banks also apply a fee in the form of a one-time commission, which at low interest rates can be high and vice versa. This means that effective negotiation requires a good understanding of the market.
Does low APRC mean cheaper cash loans?
Every consumer would like to take out the cheapest loan possible, which is why many people choose offers with a lower APRC. In some ways this is reasonable, but it does not always work as we would expect. Why? Well, the amount of this parameter is influenced not only by the value of interest, but also by how long you will pay back your liability.
Remember that the longer the loan period, the lower the APRC value, but at the same time the higher the total cost of the loan. What’s more, the cost of your liability will be higher if, with the same actual annual interest rate, you incur a liability with a fixed installment, not a decreasing one. This is of great importance when taking loans for a large amount.
APRC biggest advantage – what is it?
APRC has a great practical advantage. Namely, it helps to compare cash loans offered by various banks very quickly. In fact, it is a tool that serves this purpose. However, to use it effectively, you will need a cash loan calculator in the form of an online application. Use it before you go to the bank. This will allow you to understand the relationship between loan costs and loan period and choose the best option for you.
Thanks to this, you will quickly find a bank that offers the best loan for you. Remember, however, that the cash loan calculator will show you a more accurate result if you compare the same loan amount repaid over the same period of time in the same installment system. It will calculate the loan installment for various APRC values offered by banks.
A cash loan? Remember that!
Taking out a loan is associated with its regular repayment, which will affect your budget. It is true that the interest rate and APRC will allow you to estimate the cost of the loan, but do not forget that you will get professional help from bank employees.
They will explain all the intricacies and prepare – the most convenient for your financial possibilities – repayment schedule so that you do not lose financial liquidity.