Before taking a cash loan and any other loan, we must pay attention not only to the interest rate but above all to the APRC of the loan, which is very important and will be able to approximate the total cost of the cash loan.
The actual annual interest rate (APRC) is very important to us because it reflects the relationship between the borrower’s total costs and the loan amount. The actual interest rate includes not only the costs of interest, the preparation fee and other additional fees, it also takes into account the value of financial flows related to loan repayment in individual periods of the loan agreement. When choosing the right loan from online comparison websites, it is the APRC that we should pay most attention to.
As it turns out, the methodology for calculating the APRC is identical for each bank, therefore the APRC is an objective tool for comparing different loan offers.
Equal and decreasing installments
When deciding on a cash loan, we must also take into account the fact that most banks will offer us a choice as to how to pay back the debt. You can choose either equal installments or decreasing installments. Installments are equal to the fixed amount throughout the loan repayment period. They contain both repaid debt and interest. The proportions of these elements change over time, at the beginning we pay off more interest and less capital. Later these proportions reverse.
When it comes to decreasing installments, they get lower as time goes by. Decreasing installments include a fixed amount of capital as well as interest accrued on the outstanding liability.
Decreasing installments are definitely better for us because the capital is repaid faster and the sum of interest will be lower than in the case of equal installments.
Fixed and variable interest rate
We can also choose the type of interest rate. Fixed interest is unchanged throughout the entire repayment period of the cash loan. The repayment schedule received with the signing of the loan agreement will no longer be subject to any changes.
Variable interest rate is the sum of a fixed element and some reference point, i.e. the interest rate applicable on the interbank market – WIBOR indicator).
The bank provides us with the loan repayment schedule, together with the calculated installments for the currently applicable interest rate. Every month, the bank will check whether the price of money on the interbank market has changed.