Interests, commissions and penalties for delays can make the computer we have bought or the trip we have made thanks to the loan is not as pleasant as we thought in the ad where we were offered. To avoid displeasure when it is too late, before asking for a loan it is not worth stopping to study a series of double-edged aspects that can make us change our mind.

0% loans can be very expensive

With headlines like “Get a 0% Loan,” companies draw our attention and make us wonder how an entity makes a profit without charging interest. What is certain, obviously, -with some exceptions such as the financing offered by certain large supermarkets- is that they do charge for leaving us the money and they can be very high amounts.

But they do it through other types of commissions or penalties that allow the lender to make a profit. That makes a 0% TIN loan more expensive than a 7% loan without fees. Therefore, before asking for the money, we have to pay attention to the interest and fees we are going to pay. The most frequent are the following.

  • Nominal Interest Rate: It is the price we pay for the entity to leave us the money, a percentage of the total amount we receive. The Nominal Interest Rate does not provide us with information to compare one loan with another due to the associated expenses and commissions included in the entity.
  • Study commission: The company that lends the money may ask for an amount – usually a percentage – for the steps it takes when studying aspects such as the solvency of the client or the viability of the operation. We have to know that if they do not finally grant us the loan, they cannot charge us this commission, but they can charge us other associated expenses -if they have had to pay other companies-, although this only in the case that they have previously agreed it with the client.
  • Opening commission: This is the amount paid to the entity for the formalization and making available to the client of the borrowed capital. It is also usually a percentage and is paid when the operation is signed.
  • Commission for modification of conditions or for change of guarantees: If the client requests to modify any characteristic of the loan, the financial institution may ask for a commission for the procedures it has to carry out to change the content of the contract or analyse the new risks that these modifications imply for the bank.
  • Cancellation or early repayment commission: The bank stops earning money if a client returns a part of the capital to you in advance or if you pay everything you owe and end the contract. That’s why it includes commissions that penalize this practice.
  • Other fees: In addition, it is important to know if the granting of the loan involves the contracting of other products that may make it more expensive, such as a current account with commissions, a payment protection insurance‚Ķ

The key is in the The Annual Percentage

The Annual Percentage Rate (APR) is the most useful indicator when it comes to knowing what we are really going to pay for the money we are granted, since it includes both the interest applied by the entity and the commissions and other associated expenses depending on the time in which the payments are made. It clearly and completely defines the cost of credit.

The APR must be included in all the advertising that the entity makes about the product and also in the pre-contractual information, in the binding offers and in the contract itself.if we had to add the interest, the commissions and other associated expenses and calculate it according to the duration of the loan, it would be more complicated to know what we are really going to pay for the money we receive.

With this indicator it is much easier to compare the conditions of several loans and choose the most advantageous one according to your needs. Moreover, the APR allows us to compare all the offers provided by borrowing entities, not only in Spain but also in the rest of the EU countries because, by law, it is calculated in the same way throughout the Union.Attention to interest on arrears, there are important new features

They are usually much higher than ordinary interest and are triggered when the customer fails to pay. If you pay 12% interest on the loan, the default interest in the contract may be 22%, for example. Therefore, when a default occurs it is easy to enter a spiral in which we owe more and more money and this causes more interest to be applied, so that the debt is unpayable and families have to respond with their assets.

Attention to interest on arrears, there are important developments

They are usually much higher than ordinary interest and are triggered when the customer fails to pay. If you pay 12% interest on the loan, the default interest in the contract may be 22%, for example. Therefore, when a default occurs it is easy to enter a spiral in which we owe more and more money and this causes more interest to be applied, so that the debt is unpayable and families have to respond with their assets.

However, it should be noted that a Supreme Court ruling in April 2015 established that interest on personal (non-mortgage) loans can only be two points higher than the agreed interest on the personal loan. Therefore, if the interest shown in the contract is 8%, the default interest could only be 10%. Anything over this amount is abusive.

In addition, this ruling not only has an effect on loans taken out in the future, but is also valid for those already signed. Irrespective of what is stated in the contract, default interest may only be applied at two points higher than the interest agreed on the loan. The consumer could ask the entity for the extra interest paid, although he will probably have to go to court.

Beware of quick credits and mini-credits

No explanations, no papers, no payroll and no guarantees finance our dreams in just a few minutes. Do you want to reform your home, buy the bike you always wanted or help those family members who are having a hard time right now? Here are the companies that offer quick credits to help you. Immediately, by phone or internet, they solve your economic problems. Sure?

Behind some of these companies that offer economic happiness in 48 hours are thousands of families foreclosed, because they have not been able to meet the payment of a seemingly low amount, either because of the high interest rates that are associated with them or because after a default they have applied very high interest for late payment.

That is why it is essential to read the contract carefully, not to sign anything without fully understanding it and not to be carried away by their ingenious television advertisements. Since the amount requested is sometimes so small, it can make us lower our guard and lead us to think that nothing dark is hidden behind the request for 50 or 200 euros.

Would anyone take out a loan if the company told us that the APR is 3.752%? It is not difficult to find them, according to ADICAE. Asking for 100 euros to pay in 30 days has a total cost of 138 euros, which gives this high APR. This association points out that if the client is unable to pay, he has the option of requesting a deferment, but in exchange for commissions that in many cases reach 120 euros.

If you still do not pay what you owe, the penalty continues to rise for each day of delay. What’s more, for each notice the debtor receives, he will have to pay an amount of between 15 and 30 euros – and they usually make one notice per week. So in a short time the 100 euros will have become 500 euros and the debt will continue to grow if it is not paid. In addition, when the amount is less than 200 euros, these mini-credits evade the Consumer Credit Contracts Act.

Simulators are a very useful tool

Once we have all the information about the loan (interest, commissions, associated expenses and, above all, the APR) we can use simulators to know what we are really going to pay for the money they leave us and how the amount we are going to pay varies depending on how long we repay the loan. The simulator will show all the possibilities. In addition, as indicated by the monthly payment, it allows you to plan the return time.

Let’s study our negotiation margin

Once it has all the information, the applicant can negotiate with the lender. In some cases this is not possible because the conditions are fixed for all clients. But at other times, negotiating with the bank can lead to an improvement, especially if the future borrower has a good financial history or a high payroll to support him.

It is also possible to contract other products of the entity in exchange for a reduction in interest, but you must always be careful, see if it really suits us and know their conditions so that a discount on the price of money does not really mean an increase in price for the consumer. Banks do not want to lose customers, so if we show offers from other entities in which we improve the conditions is possible to give and make a discount.