Low interest rates meant that banks cannot currently charge interest higher than 10% per annum to borrowers.
This was caused by the rule of the Civil Code:
maximum nominal interest – based on it, the bank calculates installments with interest – should not exceed twice the reference rate of the Fine Bank (today 1.50%) plus 7 percentage points
Four years ago, banks could charge up to 25% of interest.
What if no interest?
The banks had to make up for it somehow. Or maybe commissions? Until March this year, there was no statutory limit as to their amount. Currently, it is already in force, but it is set at a painless level for banks of 25% regardless of the repayment period plus approx. 2.50% for each repayment month (in total eg 55% for loans for a year, 40% for loans for half a year or 27.50% with a monthly offer ).
An additional attempt on banks’ income was joining mandatory insurance loans, but this was hindered by the recommendation of the Polish Financial Supervision Authority: the principle that even if the bank requires the purchase of a policy, the customer can find an offer on the market that will suit him or not agree to the one proposed by the bank. The chart below shows a clear jump in commissions in April 2015.
Today, the average commission for granting a cash loan for 10 thousand dollars per year is around 9-10%, and four years ago it was 2.50-3%.
What does this mean for the borrower?
Customers who borrow for a short time pay more. This is indicated by the Annual Annual Interest Rate, which collects the total cost of the loan. For offers for 10 thousand dollars per year the market average APRC has increased over the last four years from approx. 24-25% to over 30%
The longer we want to pay back the loan, the better for us, because the longer we pay interest, which is currently relatively low.
You might think that it doesn’t matter if we pay for the loan in the form of interest or commission. For example, a problem arises when the liability is repaid early. Interest is charged on each installment, so if we repay the loan early, we won’t have to pay it for the “unused” months.
Lenders consider the commission as a one-off cost, they charge it at the time of payment (ie the debt is eg $11,000, but the client gets only $ 10,000), and they are not in a hurry to pay a proportionate part of it if the debt is repaid before time. The Office of Competition and Consumer Protection and the Financial Ombudsman took a critical position in this matter, but banks treat this fact simply as an irrelevant clue .
A cash loan of dollars 10,000 for 1 year, with the average commission market and nominal interest rate, will cost around dollars 1,382 today. In this amount, dollars 907 is a commission, and interest $475. The commission here is nearly 2/3 of the total cost of the loan. Four years ago the commission was less than 1/4 of the total cost of the loan.
The longer we repay the loan, the longer the bank collects interest, which means the share of non-interest costs – including commissions – in the total cost of credit decreases. After all, there is a big change here over the years. In 2012, in the loan model for $10,000 for 3 years, the commission was only less than 1/10 of the total cost of the loan. For comparison, today it is 40 percent.
Bank offers have therefore come close to those of loan companies, where the real cost is not in interest but in other fees.
Banks do not admit that they do not earn interest anymore and try to earn increases elsewhere. They further claim that “the commission is the Bank’s remuneration for activities related to the conclusion of the contract and the withdrawal of funds”, according to a Stick24 Bank statement.
Zero is not zero
It is often the case that banks, since they cannot collect high interest rates, simply give them up and place the entire cost of the loan in commission. Seeing the offer at a very low or even zero interest rate, it’s worth looking for hidden costs and asking for a commission.