The interest rate of a loan sets the remuneration of the loaned capital, paid by the borrower to the lender. The rate and the terms of payment of this remuneration are fixed at the conclusion of the credit contract. This percentage considers the duration of the loan, the nature of the risks taken and the guarantees offered by the lender.
The interests that will be used on a credit will allow the lender to cover himself against three events:
When you sign a consumer credit contract, it is important to keep in mind that there are several types of interest rates. These rates will describe the annual percentage costs that a customer has to pay for the credit that a bank or credit institute grants him.
The first difference to be pointed is between the nominal rate and the real interest rate. The nominal interest rate refers to the rate as established at the time of the conclusion of the loan. It corresponds exclusively to the interest charges in percentage to be paid for the credit desired. Other charges such as processing fees or commissions are not considered.
The second measures the interest charge that actually applies to the loan, taking into account price changes. It is used to determine the actual cost for the borrower.
As for the effective interest rate as an annual percentage, it designates the overall fees that must be paid for a given amount of credit. These fees are composed of the nominal interest rate, the processing fees and other possible costs such as the guarantee for insurance or the fees for opening and maintaining a payment account. It is thanks to this rate that the client will be able to compare the different offers between them.
In general, a loan is never repaid in one go. The monthly payments are spread out over several periods during the year. For a complete control of your credit, it is important that you are informed about the existence of annuities. There are two types, a constant one and a variable one.
When we discuss a constant annuity, we have to associate four elements to it:
The annuity sequence is constant if the period does not change, otherwise, it will be variable. When the annuity is constant, the share of capital amortization increases while the share of interest decreases. As a result, it allows for an identical distribution of the loan burden and greater freedom in budget management.
The constant annuity is therefore the annual repayment of a loan with interest by a constant amount, which is calculated according to the interest rate and the duration of the loan.
When the annuity is variable, the part of the capital amortization remains the same each year but that of the interest decreases. Since the interest is calculated on the remaining amount due, the financial costs are more advantageous than with a constant annuity. Keep in mind that the payments are higher at the beginning
Creditworthiness and honorability are two extremely important terms for the borrower. To maximize your bargaining power with your bank or broker, it is imperative to act on these two elements. How do you do this?
MultiCredit differs from traditional banks and unlocks special financial situations. With over 15,000 credit applications per year, we have extensive experience in consumer credit. We provide appropriate and relevant advice and guarantee the best rate to the borrower.
Do you have a project to finance? Contact one of our experts and make your request. It will be processed quickly, easily and with the best interest rates.
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The article was written by MultiCredit.