An employee or an entrepreneur decides to take out a loan, his first instinct is to learn about the interest rate charged by the bank or the credit institution. A financial meanwhile has a markedly different approach in that it will use different calculations to compare credit offers. While such approaches are mathematical and financial binding, however, it is essential to understand the broad outlines for not advancing headlong into a loan and the risk of being manipulated by the bankers. Note also that most of the numbers and rates shown are approximate, since they follow a long and complicated process. Thus, we must understand that when you take out a loan, it is rare that the banker tells you exactly how this operation could cost you.

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Determining the real cost of credit uses several simple concepts, but the combination of which complicates the process. Without going into mathematical details, it is still necessary to understand the basis of this calculation and to know each of its components in order to negotiate your loan in the best possible conditions.

The basic elements used to calculate the cost of credit

The information required for a loan to suit your different projects, and the credit institution to which you are addressing. In all cases, your loan file must contain critical elements on which your bank will use to decide whether to grant you the credit you are requesting. These various tests create costs called “administrative fees”, which can be fixed or proportional to the amount awarded, but generally not exceeding 1.5% of the amount. However, remember that you will be provided if your loan was rejected.

Depending on the nature of your needs, it is possible that your bank requires a bond, mortgage or lien of the money lender. If the first is quite simple and cost, we must know that each of these acts incurs costs, including the notary in the last two cases. In addition, there must be additional costs relating to the nature of each transaction that is in fact a guarantee to your bank, in addition to insurance costs.

The nominal rate is an important indicator varies from one institution to another, without exceeding the wear rate of the Bank of France. While it in the calculation of interest, included in the amortization of the loan, however, it does not set provided the cost of credit. Indeed, the financial defined the actuarial rate, which is, in fact, the actual rate of your credit. The yield to maturity considers, in particular inflation rate to hit the economy in each of your payments, the amortization of your loan. As a result, you make a discounted cash flow and your results are the values ​​of the moment.

As an illustration, for example if you borrow € 100 today, your bank will reimburse you € 110 after one year. With a 4% inflation forecast for this period, the € 110 you will actually not worth that 110 / € 105.77 or 1.04 today. In principle, the margin of the banker is 5.77 instead of 10. However, in practice, you will pay in several installments. Per quarter, if inflation is 1% your bank will charge you € 27.5 quarterly. You think then receive preferential treatment when, in fact thanks to the discount, your banker is the real winner. Indeed, you will pay a total of € 107.33 with a simple present value calculation: (27.5 / 1.01) (27.5 / 1.02) (27.5 / 1.03) (27, 5 / 1, 04). Thus, with an apparent cost of 10 at the start, your loan will cost you actually 7.33. However, before taking the 10% to achieve € 110 apparent, be aware that your bank has already calculated the rate at which expenses will be submitted. These are proportional to your income and refer to your credit, through a process reserved for insiders in financial matters, actually leading to a CAGR of 16.65%.

How to reduce the cost of credit?

To determine the cost of credit on a loan of € 100, the various elements we have discussed above must always be included when calculating discount. Thus, taking a safety margin of 2% for administrative costs and a rate of 1% Maturity for insurance, you pay € 111.23 in the end. However, this calculation depends on the repayment terms for which you have chosen. So, if you choose to make quarterly repayments, they will increase to € 28.5 and € 27.5 Depreciation and € 1 for insurance, and will be updated on 4 quarters. Of this calculation will emerge a new actuarial rate of 27.86%, which took into account all costs, equal to the percentage rate or Teg. Only the mandatory guideline is relevant enough for a reliable comparison between two loan offers. Therefore, you must require that the Tag is clearly on each type of loan before you borrow. Also, if you hire a financial adviser, it should be able to provide you making detailed calculations. In the event that your bank statement Teg is distorted when it is the only element that can express the true cost of your credit, you are entitled to claim compensation.

If the bank on which you set your choice practice a high cost, you can always opt for insurance to competition in order to qualify for a loan at a lower cost. However, prior to any action, you can already reduce costs by providing a personal contribution therefore to reduce the risk of the bank so she did the same on interest rates. In addition, you should develop a plan loan for a period as short as possible because the longer the more you will have deadlines and the cost of your loan will be important for the interest they generate. Finally, compare offers and target particular loan type zero. In any case, more simulations are numerous loan, you will be better placed to balance the competition between banks in your favor.