Many financial terms can be encountered in loans, which are one of the most common methods used by consumers to finance their expenses. One of the concepts mentioned in the repayment plan, loan contracts and other documents signed when using a loan is the annual cost rate. So what is the annual cost rate? How is the annual cost rate for loans calculated? And what should be considered when using credit?
In loans, which is an economic concept, the basic cost is the interest rate. The monthly interest rate, which is usually determined and announced monthly, is not the only cost item in the loans offered by banks.
What are the costs encountered when using a loan?
The basic operation of loans is to calculate interest on the principal. Calculation is made by applying interest again to the remaining principal in each installment period. In other words, it is recalculated by multiplying the remaining principal after each monthly installment by the monthly interest rate. Monthly installment amounts are obtained by adding taxes such as KKDF and BSMV to the monthly calculated amounts.
As can be seen from the definitions above, various taxes are also included in the cost calculation of loans in addition to the interest rate. In addition to interest and taxes, insurance when extending loans and expenses charged by institutions under various names such as file costs and transaction fees should also be taken into account.
Interest, insurance, taxes and other expenses are also included in loans, resulting in annual cost rates of loans. In short, the annual cost rate of the loans is determined by taking into account the amount transferred to the loan and all expenses in the 12-month period. In simplest terms, the annual cost rate is the ratio of the difference between the amount consumers receive and the amount they repay in loan processes.
How is the annual cost rate calculated?
When calculating the annual cost rate for loans; The effective interest rate is determined by adding taxes and other expenses to the interest paid outside the principal. The annual cost rate is obtained by multiplying the effective interest rate by 12.
According to this calculation, annual cost rates rather than announced interest rates should be taken into account in loan transactions. Although interest rates are low in some institutions, annual cost rates may be high due to other expense items. Here, the annual cost rate appears as the most important item that consumers should consider in their loan preferences.
