Taking a loan, we must bear in mind the fact that we pay not only the amount we borrow but also additional loan costs. More vividly, we have to give away more than we borrowed. The loan capital is the amount that the bank gives us for use in accordance with the loan agreement. This is only one of the components of what constitutes the total cost of the loan. By entering into a loan agreement, we buy money from the bank for money. So we are the party that must cover all credit costs.
In addition to the capital of the loan, we must also pay interest on the loan. Interest on the loan is therefore the basic cost of this loan. The Bank charges interest in connection with borrowing cash from the borrower, and the latter uses these funds in accordance with the purpose of the contract or in the case of a cash loan, earmarks them for any purpose. The amount of interest depends on the amount of loan capital and the period for which it is credited.
Additional loan costs
In addition to loan capital and interest, the borrower also undertakes to cover any additional loan costs. Additional costs are set by the bank. Their amount depends primarily on the amount of the loan, its type, method of collateral, etc. Credit costs can not be avoided. As we said at the beginning, by borrowing money from the bank, or actually buying it, we also have to pay for it. The simplest loan transactions can be compared to buying products from its producer. Buying, for example, vegetables at the market, we do not pay only for the product, but also for the work put into its cultivation, collection and delivery to the customer, that is to us. The producer wants to earn both for his maintenance and new seedlings. It is not the case with the loan. When buying money from the bank, we must give it to earn, on sale. Therefore, with each loan agreement, there are additional loan costs.
What additional costs can be distinguished
The fixed cost of the loan is definitely the cost of servicing the loan by the bank. For the fact that the bank gives us funds, we have to pay for it. The bank is the seller, the borrower the buyer. That is why the borrower pays the bank a loan. Other insurance costs also include insurance. Even with small amounts of credit, you should consider its insurance. Often a bank representative presents insurance as a compulsory element. However, whether we insure a loan or not often depends on us, especially taking a cash loan for any purpose, which is for a relatively low amount. There are also many other costs of loans, which depend primarily on the type of loan.