Whatever the reason for your loan, you want to know the costs. The elements to consider and some basic calculations to properly assess the cost of credit and choose the best for your situation.
Include all costs
The nominal interest rate offered by the bank is not sufficient to compare offers of credit or to determine the real cost of credit. Must be added the fees, insurance, fees for guarantees. Insurance costs I n France, credit insurance death – Disability, otherwise known as “credit insurance” is required for all mortgage but not for consumer credit. Plus the amount borrowed and the duration is more important that insurance makes sense because it frees your heirs from any repayment obligation. The cost varies between 0.3 and 0.5% of the loan for borrowers under 65 at the time of the loan. In addition, the cost rises quickly. The banks that make you the basic credit offer along with the necessary credit insurance and some require that you take the insurance group. But this will be a reform . Other insurance such as loss of employment insurance is optional. Useful especially for a mortgage in the long run, it will be difficult to obtain if you are living in precarious work and if you do not have an employment contract of indefinite duration.
Fees
Fess are levied by the credit institution during the establishment of credit. They may also be used if your “not pass” and that your credit is denied. These costs reflect the cost of the analysis of the application for credit. Depending on the types of loans and the banks, they can be fixed or proportional to the amount of the loan. They represent up to 1% of the amount financed. The additional costs I ls include costs incurred by the bank on your behalf: stamps, registration fees, etc.. Generally, they do not exceed a few tens of euros. If purchasing a property a notary will oversee and ratify the real estate transaction. These fees, mandatory and substantial (accounting for 6-7% of the purchase price of an existing dwelling) are not expenses related to credit is much of a fiscal nature (registration). See the website Notaries in France the percentage rate of the loan (TEG) adds all elements of the cost of borrowing interest rate, itself calculated on an actuarial basis. Even if they are paid once at the beginning of the credit, fixed costs are divided by the duration of the credit can be calculated as a percentage. The APR allows you to calculate the cost “all inclusive” of your credit and compare the offers as a whole, not just by comparing the nominal rates.
The effective rate of credit is an important element of cost and small differences ultimately lead to significant variations in cost: 6.5% interest rate instead of 6% on a credit of € 50 000 borrowed for 10 years is an additional € 12.64 monthly fee and an additional cost of the overall credit of more than € 1 500.
Total cost of credit and monthly payments
Four data form the basis of calculating the cost of your loan: the amount of your loan, the interest rate, duration of the loan, the periodicity of repayment of principal and interest payment. With these data, it is possible to establish the timing of your repayments. This is called the amortization schedule of your loan. This document is attached to the loan offer. It indicates the amount owed by the borrower on each due date, detailing the distribution of reimbursement between: the principal, interest, premium on insurance and the capital outstanding after each monthly payment.
In case of floating rate debt, it will be possible to establish an amortization schedule if the different interest rates and their date of application are established from the start. But if the rate is indexed to a given uncertain as general changes in interest rates, it will be impossible to establish the amortization schedule will apply effectively.
This essential fact, however, is not the only criterion of choice. The financial burden that you must pay each installment, it will weigh in your budget are also an important criterion for the decision. Remember that expenses are expenses credit constraints, fixed costs in your budget. Unfortunately, the credit has the least overall cost may not be tolerable for your budget.
We must take into account these different dimensions, in part contradictory to define ultimately the amount of the loan that you can make , its duration and the interest rate you can get.