Credit

The price of a consumer credit is formed by the interest, the expenses and other fees. These may include

• the nominal interest (total interest): the market interest rate (generally the 1, 3 or 12-month euribor rate or the bank's prime rate) + a customer-specific margin on top of the market rate
• start-up expenses of the credit
• start-up and annual expenses of the account
• account management and service fees
• additional premium for payment by installments

The cost of consumer credit is further influenced by the number of installments, or in other words, the duration of the loan period. As a rule, the longer the loan period, the more expensive the credit is.

Your bank loan may be linked to the euribor or prime interest rate. A credit-specific or customer-specific margin will be added on top of the base rate. Together they determine the total interest due on your credit.

A credit linked to the euribor or prime rates is influenced by fluctuations in the market rates used as reference rates. The bank must inform you of changes in the market interest rate in your monthly statement or otherwise in writing.

Compare the price of credit based on real annual interest

The total costs of a credit will give you a figure in euros on how much you are actually paying back to the creditor.

The marketing of the credit must indicate the real annual percentage rate. The higher the real annual interest, the more expensive the credit is.

Card credit and other types of overdraft facilities must use an example illustrating a typical credit amount and the corresponding real annual percentage rate. For example,

• a credit X XXX €
• a real annual interest rate XX.X %

A one-time credit, also known as a bullet loan, is paid back in full after an agreed period of time. If the cash price is provided, the price of credit and the real annual interest rate must also be disclosed.

• a cash price X XXX €
• a credit X XXX €
• a real annual interest rate XX.X %

Take note of the loan period and monthly installments

When you pay on credit you are spending your future income before actually earning it. Always think carefully about how you will manage the repayment of the loan. The longer the total time of amortisation, the more expenses will be incurred to you from the credit. The method of amortisation also affects the price of the loan.

With credit cards you do not get to choose the method of amortisation. Text message loans are always the bullet loan type, i.e. they are paid back in one installment.

For loans granted by banks , you can choose a constant payment loan, annuity-based amortisation or a fixed amortisation schedule.

• With a constant payment loan, your payments will be equal throughout the loan period. The proportion of the actual amortisation of principal in your payments is small at first and increases as you pay off the loan. The share of interest in your payments, however, is large at the beginning. If the reference interest rate linked to your loan increases, your loan period will be extended but the size of the payment stays the same. This means you can easily plan your monthly interest expenses beforehand. Your total interest expenses will end up being larger with this method than with a fixed amortisation schedule.
• Annuity-based amortisation is also characterised by equal payments. The proportion of the actual amortisation of principal in your payments is small at first and increases as you pay off the loan. The share of interest in your payments is large at the beginning. The difference between this method and constant payment loans is that if the reference interest rate increases, so will your repayment amounts , but the loan period stays the same. The loan period, therefore, is known beforehand. Your total interest expenses will end up being larger with this method than with a fixed amortisation schedule.
• With a fixed amortisation schedule, the amount of capital amortised is equal in every payment you make, but the amount of interest gets smaller with each payment. The proportion of interest affects the amount due for each payment: the installments are larger at first and get smaller towards the end. If the reference interest rate linked to your loan increases, your payments will also increase . The loan period, however, stays the same.

Credit with collateral is less expensive than credit without collateral

Collateral for credit may include an apartment or other property. If you fail to pay off the credit as agreed, your creditor may demand that you sell off the collateral.