➡ The interest on loans is charged according to the specified annual interest rate. The types of interest rate have already been discussed in connection with passive banking operations.
➡ Potential nominal provision fee should be paid based on the unused amount of the credit limit. Its level is specified by the bank, usually on an annual basis up to 0-2%.
➡ Handling charge is a single one-time fee charged for credit assessment and binding of contract. Its extent compared to the full amount of credit is 0-2%.
Credit institutions may charge a credit assessment fee regardless of whether the decision was negative or positive. It is generally a specific amount.
➡ The loan disbursement fee may be charged after signing the loan agreement, at the time of disbursing the loan. It is usually 0-2% of the loan amount.
➡ Banks charge an amendment fee in all cases when the client’s file has to be handled.
➡ In case of prepayment fee, the bank charges a commission for the client’s unexpected cash flow due to liquidity and interest risk.
➡ In case of guarantees and letters of credit, credit institutions charge annual fees rather than interest rates. The extent is between 0-3%.
➡ The payment of risk taking commission occurs in case of purchasing the receivables (factoring), which reduces the amount of money paid to the customer.
➡ The bank may oblige the client to the payment of default interest if he does not fulfil the current obligation in time.
The indicator that includes all costs to be paid on capital is the Annual Percentage Rate (APR). The APR is an internal rate which shows the real expense of the loan, in terms of present value calculation: it is an internal rate, in addition to which the repayable capital and lending fee is equal to the sum of credit reduced by expenses paid by the client to the credit institution at the time of the liquidation.
So the total charge is the amount to be paid by the borrower based on the credit agreement in addition to the principal amount. Determining the interest rate and contributions of the credit is called credit pricing. First, the base rate is determined, its parts are the cost of liabilities and interest margin. So the minimum credit interest to be paid by the client is the average (of the) interest rates paid for the bank’s liabilities (deposits, refinancing, etc.) and the interest margin. The bank increases the basic interest rate with the interest rate risk premium (due to the position of the client and the transaction).
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