The cost of non-bank loans is undoubtedly one of the most powerful topics. As is well known, the government plans to amend the so-called Anti-usury Act, which is to be motivated by concern for the interests of customers using the services of the loan sector. However, are payday loans and other non-bank loan options really so expensive? What are the main fees we incur when taking a quick loan? And finally: how do you compare the cost of non-bank loans with the cost of consumer loans offered by banks? Let’s take a closer look at this and try to answer these questions.
Basic costs of non-bank loans
As a rule, the main cost factor for non-bank loans is the commission for granting the loan. The commission is sometimes even 80% of the total cost of the loan. In this aspect, the offer of loan institutions is quite different from the offer of banks, which, of course, does not mean that the latter do not charge commissions to their customers. Therefore, the basic costs of payday loans and non-bank installment loans include:
2. Capital interest
3. Preparation fee
4. Registration fee
5. Possible fees for paying the loan by GIRO check or home service – signing the contract at home by providing a document by courier.
The last three points are fees of a rather symbolic amount. For example, the fee for using the GIRO check is usually $ 4. Preparation fees and registration fees will cost us a little more. Capital interest for non-bank loans is also, in principle, only a small part of the total cost of the liability, but this may change especially in the case of installment loans.
We can see it on the example of the offer of one of the known loan institutions.
For a loan of $ 5,000 and with a repayment period of 36 months, the costs will be as follows:
1. Commission – $ 3,971
2. Capital interest – $ 1592
3. Preparation fee – 129 $
The final total cost of the loan will therefore be $ 5,692, which means the customer’s total repayment of $ 10,692. However, it is worth remembering that this is an example of an installment loan. In the case of payday loans, most often the customer will pay only a commission and capital interest in the amount of a few to several USD. Below is an example for a loan of $ 1,000 and with a repayment period of 30 days:
1. Commission – $ 274.66
2. Capital interest – 8.22 $
Additional costs of non-bank loans
It is worth realizing that in addition to the basic costs of the payday loan or installment loan, in some situations we will also have to pay for:
1. Extension of the duration of the loan agreement
2. Refinancing the loan
3. Statutory penalty interest calculated in the absence of timely repayment of a loan
What is very important, each of these costs will also refer to the so-called loans for free, i.e. payday loans with a promotional interest rate of 0% on the APRC basis. It should be remembered that in this case the APRC parameter refers only to the basic costs of the loan. This means that when deciding, for example, to extend the first APRC loan of 0%, we will also have to pay a commission for extending the contract.
By default, the commission for extending the contract will be about 25% of the loan value. The matter is a bit more complicated when it comes to refinancing loans, because in this case we are dealing with a separate obligation, which is given to us by the entity cooperating with the loan institution. This means that the amount of costs related to refinancing will most often be known only when the refinancing loan application is submitted and the offer is received.
Payday loans and loans in banks
The cost of non-bank loans has already been mentioned. How will the offer of bank institutions look like compared to payday loans or non-bank installment loans? Take the consumer loan offer at one of the largest Polish banks as an example. The loan amount is $ 1,000 and the repayment period is 96 months. As a result, the costs will be as follows:
1. Commission – $ 199.86
2. Capital interest – 223.27
3. The total cost of credit – 422.13
At the same time, it is worth adding that we present an example of a loan without insurance. In practice, however, customers often hear from a bank employee that they can only receive a loan by purchasing their insurance, which obviously significantly increases the overall cost of the liability. Another issue is the fact that we present an example of one of the biggest players in the Polish banking sector. In the case of smaller banks, both the amount of commission and interest may be significantly higher.
As you can see, non-bank loans are not cheap solutions. It is a myth, however, that the offer of today’s banks is particularly attractive to customers, especially considering the various practices used by banks, such as the aforementioned offering of loans to customers only including insurance.