It is important to be aware that the interest rate is only a fraction of the total cost of the loan. The actual percentage that shall be paid back, is reflected in the annual percentage rate of charge (APRC).
APRC is the value expressed as percentage, that is calculated by applying the formula established by the law. It includes all the expenses paid for taking a consumer loan. The lower the APCR, the less will be paid for the loan.
Learn of both the fees and additional terms
The most common fees, together with the interest rate, include contract fee and monthly fee of account maintenance . However, other fees, such as insurance or transfer fee (if the borrowed amount needs to be transferred to the third parties or institutions), might be applied. The amount might increase not only due to additional fees, but also due to disproportionate size of them (for example, a fee of several hundred euros for signing the agreement).
Before concluding the consumer loan contract, one should look over the additional requirements, as well as conditions applied by the institution providing the loan: if one fails to fulfil their obligations on time, whether the fines are applied (and of what amount); whether a higher interest rate is applied, etc.
APRC is useful when comparing the prices
The annual percentage rate of charge is useful when comparing proposals of different credit providers, especially when they apply different pricing strategies: e. g., the interest rate might be lower, but contract administration and other fees might be higher.
Based on the law of the Republic of Lithuania, the APCR shall always be specified, therefore, the customers can always request for it in all financial institutions. After the information regarding the credit is received from several providers, determining which financial institution offers the best terms is uncomplicated.
Another way of comparing different proposals, is to compare the monthly instalment, as well as one-time charges. If monthly instalment in all proposals is the same, see where the total sum of one-time charges is the highest. Also, it is important to pay attention to the terms applied in the case of an early loan repayment, or a need for contract terms amendment.
IMPORTANT
- APRC is calculated according to the formula established in the law (see the law here (in Lithuanian))
- The interest rate cannot exceed 75 % of the full consumer loan amount.
- Other expenses cannot exceed 0,04 % of the full consumer loan amount per day.
This practice may differ throughout the countries, and depends on the legal base.
According to the responsible borrowing provisions of the Bank of Lithuania, total amount paid to different financial institutions monthly, should not exceed 40 % of the total monthly income. To calculate the potential monthly instalment, you can use the consumer loan calculator.
