What is more important when choosing a loan: the interest rate or the full cost?

When choosing borrowed funds, inexperienced borrowers often make the mistake of focusing exclusively on the promotional nominal rate that banks put in the foreground. However, a much more important indicator is the full cost of the loan. This parameter is mandatory indicated on the first page of the loan agreement in a special box in the upper right corner and reflects the borrower's real expenses for the entire period of using borrowed money as an annual percentage.

The full cost of the loan includes not only the basic interest for using the principal debt, but also a number of related expenses that the bank may make mandatory. Such expenses include loan issuance fees, mandatory life, health, or property insurance, payment for various legal services, issuance and maintenance of plastic cards, and SMS-banking. The nominal rate may look incredibly attractive, but due to imposed additional paid services, the real overpayment will be unaffordable.

To make the right choice and avoid overpaying, request the full loan cost calculation from managers even before signing documents and carefully study all the terms of the contract. Compare offers from different banks precisely by this indicator, rather than by advertising slogans. Remember that you have the legal right to refuse certain additional services, such as voluntary insurance, during the so-called cooling-off period, which will further reduce the final financial burden on your personal budget.