If you plan to take a loan from a bank, you need to prepare well for this step, after all it’s about your financial security! Today we will try to explain the next concepts that every borrower should know, including the potential one, i.e. the total cost of the loan and the total amount of the loan!
Total cost of credit: what does it mean?
If you’re getting ready to take out a loan, the cost of the bank loan should be an issue that will focus your attention. Both the total loan amount and the total cost of the loan are concepts defined by the Consumer Credit Act. What does the total cost of the loan mean? What is the definition of the total cost of credit?
The Consumer Credit Act says that the total cost of credit is the total cost that the borrower must pay when deciding to take out a specific loan. Therefore, the total cost of the loan consists of all costs borne by the borrower for concluding the consumer loan agreement.
Why is this concept worth knowing? Knowledge of terms related to a bank loan is an indispensable element that allows the concept of an informed decision. Credit is a commitment that should be taken seriously.
What does the cost of the loan consist of?
We already know what the total cost of credit is within the meaning of the Consumer Credit Act. Now the question arises: what are the elements that make up this total cost of credit? In practice: what is included in the total cost of the loan? The total cost of credit includes, among others, components such as:
• commissions, for example preparation commission
• fees required by the lender
How to calculate the total cost of a loan?
Let us now turn to the main question: what is the calculation of the total cost of credit? How should the calculation of the total cost of credit look in practice? It is very easy! How do you calculate the total cost of a loan? All you have to do is add all the elements that make up the total cost of the loan for a particular loan.
Total loan amount: what is it?
We already know what the total cost of the loan is and what it actually consists of. Now it’s time for another concept worth knowing: the total loan amount! What is its definition? As has already been mentioned, this term, like the term – the total cost of credit is specified in the Consumer Credit Act.
Under this Act, the total loan amount is the amount you actually get from the lender based on the loan agreement. It should be remembered, however, that the total loan amount does not include borrowing costs.
We have explained two important concepts in the context of consumer credit. Why is it worth knowing them? Knowledge of this topic may be useful when making decisions about making a similar commitment.