Everyone is aware that the price of a given product or service is not the same everywhere. For example, a kilo of crystal sugar can be purchased from EUR 0.55 up to EUR 1.55. The price difference can be considered huge.
We do not expect much from crystal sugar. We need it for coffee, tea or baking. Therefore, it is probably not important from which manufacturer we buy it. But if we compare the same brands, we’ll find a 50% difference.
Price consists of the price of raw materials
Why is it so? How can we buy the same product at different prices? Obviously we all know that this is because we live in a market economy. Prices of products and services consist of different items. If these items?
The selling price consists of the price of raw materials, the price of production and the price of logistics and the amount associated with the sale of the product. Manufacturers must calculate all costs associated with placing the product on the market. Everyone accepts that the world works this way. And conscious consumers will always find a place to buy the product at the best price.
Why would it be otherwise in the world of loans?
Perhaps it is incomprehensible for an ordinary bank client how a given bank or financial institution can offer a given amount for much more or much less money?
This example can also be used for loans. How does a financial institution make a loan price?
The amount of loan requested must also be obtained from a source by the provider. Either they borrow from the savings of their clients, or borrow from another bank, in any case they will pay some interest on the money source. This amount can be taken as the price of raw materials.
In addition, the provider will also take into account the cost of processing the application, the applicant’s credit rating, the risk associated with the loan. There are loans that the borrower will not eventually pay and therefore these risks and costs of the loan are taken into account.
The last item added to the loan price is the cost of providing the loan, the cost of financing the bank advisors, branches, etc.
These costs also take into account the different profit expectations of the financial institution’s owners. And of course they are very different. How do we choose the best offer?
Acquisition policy can also affect loan conditions
If the provider offers very good conditions for a certain amount, we can be sure that it is the will to get more new clients. There are banks offering zero interest rates to applicants who apply for their first loan and charge only a negligible fee. Of course, if the same client wants a new loan, he will certainly not get zero interest for the second time.
Why is this approach favorable for the bank? By offering a loan almost free of charge, they obtained a client who changes the bank, a monthly income coming to a new bank account in which they may be staying longer. Getting new clients is very important for every business, even banks are no exception. Like telecommunications, they always come up with bargains for new customers, and banks use the same method to attract new clients.
How can we compare the offers of financial providers?
We see that they offer the same amount for different conditions. How do we compare offers? First we need to know the theory. Banks charge us interest and other charges. The total cost of the loan will be shown by the RPMN indicator – annual percentage rate of charge. This indicator includes all – even one-off – fees that the provider charges, of course, interest. Therefore, this indicator is higher than the interest rate. The shorter the repayment period, the higher the RPMN indicator can be. When comparing bids, the amount, interest rate and repayment period need to be the same for the bids compared. Find out more about RPMN here.
How do we choose the best offer?
Planning and prudence, these words are the key to choosing the best deal. And we don’t regret a good choice later.
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