Today, we will discuss the main features of a non-purpose consumer loan. We will discuss what pitfalls different products can bring and how to detect them early.
Basics
A non-purpose consumer loan is, simply put, a loan. Whether you are borrowing new money or consolidating existing loans into one (consolidation), the following parameters are of particular interest to you:
- interest rate
- maturity
- options and conditions for early repayment
- fees and the resulting APR
Interest rate
The average interest rate on consumer loans in August 2019 was 8.46% p.a. means “per annum” or annually. So if you borrow CZK 100,000 at this interest rate, we can say for simplicity that your interest will be CZK 8,460 for the first year. The interest paid gradually decreases with repayment.
Sometimes the interest rate offer is conditional on the agreement of an additional product (insurance, account, etc.). If you see terms like “Bonus Interest Rate” and similar expressions anywhere, watch out. This is an interest rate that applies only under certain conditions. In most cases, this is a condition where the loan will not be repaid early and no extraordinary repayment will be made.
Maturity
In the Czech Republic, you can borrow money from a few days to several years. The maximum repayment term of a non-purpose loan can be max. 10 years.
Early repayment options and conditions
As of 1.12.2016, this is already defined by law. The maximum early repayment fee may be 1% of the current loan balance (principal). It is worth noting that some banks offer this for free, i.e. without a fee.
Fees and resulting APR
APR stands for Annual Percentage Rate of Charge. It is the interest rate after all related fees. And this is where you need to be very careful. If the APR and interest rate are significantly different (within a few %), it means you have additional fees hidden in the loan. This may be an arrangement fee, the cost of the insurance or other ancillary costs. The loan agreement must clearly quantify these ancillary costs. I’ve seen APRs of 130.77% p.a. The client would have no chance of repaying such a loan. Always check the credit agreement for this information.
Can I get a loan?
Sometimes I come across people who think that for some reason the bank should not give them a loan. Very often this fear is unnecessary. If you’re a working person and have room in your monthly budget to repay the loan, it’s very likely that you’ll find a bank that will give you a loan. So don’t take the first offer without first making a competitive comparison.
If you are interested in this article, I will be happy to help you compare offers on the market and help you with the process of arranging a loan, refinancing or consolidation. We can contact you in any of the ways listed below.
