Credit simulation

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  • August 13, 2019
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Wondering how to choose the most suitable credit offer? A credit simulation will help you to do this. You can carry it out in the credit calculator. Its results will give you an overview of the details of the credit offer.

Pre-selection of credit offers

On the Internet, radio or television you may come across many offers from banks that offer loans. Especially in times of increased consumer activity, banks try to sell as many loans as possible. In order not to get lost in this jungle of offers, it is worth making an initial selection and rejecting the most expensive ones. In this initial selection, we will be very helpful in the RRSO ratio. This is nothing more than the Real Annual Interest Rate. It is calculated in the same way by all banks. This is strictly regulated in the Consumer Credit Act. The uniform method of determining the APR makes it a very useful tool for comparing the credit offers of different banks.

The APRC is given as a percentage and expresses the ratio of the total cost of credit to the sum of borrowed money. The APRC is more authoritative than the nominal interest rate itself. Apart from this interest rate, the APR also takes into account all the fees that the bank imposes on borrowers – commission, margin or preparatory fee.


Credit simulation

Once we have chosen a few of the offers we think are interesting, it is worth looking at them in more detail. A credit simulation will help us to do this. We can carry it out using a credit calculator. On the Internet we will find many pages with calculators. In order to choose the most suitable one, we have to check if it contains a user manual and information that its results are indicative.
How to use the calculator? In order for the credit simulation to give us the most complete results, we should enter appropriate data into the calculator. First of all, we need to specify the amount of the instalment we are able to repay, the amount of the nominal interest rate, as well as the preferred financing period. You can also provide information on whether you want to pay equal or decreasing installments. As a result of the simulation, we will obtain estimates. These will be dry data, however, without any comment or interpretation. Here we have to rely on our knowledge of finance. With the help of a credit calculator, we will perform a simulation for each type of credit. It should also be remembered that the results obtained by the simulation will differ from the results offered by the bank.

What costs are associated with the credit?

We mentioned earlier that the best measure of credit offers is the APRSO, as it includes all possible credit costs. What do these costs really consist of? We are talking about the commission and preparation fee, and the most important cost factor, which is the interest rate. The interest rate can be fixed or variable. In the case of fixed interest rates, the matter is obvious. It is at the same level for the entire duration of the loan. And what is the situation with variable interest rates?

Variable interest rate, as the name suggests, changes during the whole loan period. The stimulator that causes these changes is primarily the level of interest rates in the USA, which is set by the Monetary Policy Council. How does it look like in practice? Well, the interest rate of our loan consists of two parts: a fixed and a variable part. A fixed part is a dream. The variable part, on the other hand, is subject – as the name suggests – to changes in relation to e.g. WIBOR, i.e. the interest rate binding on the interbank market.

Which interest rate is more favourable for the borrower? In fact, it is difficult to answer this question. Currently, due to low interest rates, a more favourable solution is variable interest rate. At this point, if we were to take a loan with a fixed interest rate, the bank would certainly offer us a much higher interest rate than the one currently in force. However, this is a short-term perspective. In the case of longer-term loans, such as mortgage loans, the situation may look different. Why? Well, such loans are usually taken out for a period of 20 or 30 years. In such a perspective, the temporary increase in interest rates is as real as possible. Then it may turn out that a loan taken out today with a fixed interest rate will be a relatively cheap option.

When to withdraw from the credit?

It may happen that even the best selection and appropriate credit simulation will not help us to choose the right offer. If we sign a credit agreement without being convinced that we are doing the right thing, we can still correct our mistake. Within 14 days from the date of signing the agreement, we can submit a written resignation from the loan to the bank. We must, of course, return the entire amount borrowed.

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