The annual percentage rate of charge (APR) is the most important indicator of the loan price for the borrower. It includes interest on the loan, handling fee, as well as one-off and regular fees, insurance if it is a prerequisite for obtaining a more advantageous interest. It does not include fees that are not related to the payment of a loan, such as default interest, insurance, fee for early repayment. If the interest rate of the loan changes over the maturity period, the RPMN does not reflect this change. It is true that the lower the RPMN indicator, the more advantageous the loan to the applicant.
How is the RPMN indicator calculated?
The description of the method of calculating the Annual Percentage Rate ( RPMN ) can be found in Act no. 129/2010 Coll. on consumer credit and other consumer credit and loans and amending certain acts and Directive 2008/48 / EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102 / EEC.In the annex to the directive we find the formula and description of the individual parameters of the RPMN calculation:
Which parameters are needed to make the calculated RPMN value correct?
- Consumer credit amount (loan amount, principal)
- repayment period (from 7 days to 10 years)
- interest rate (the rate at which the interest is a loan),
- regular loan repayment (amount of interest and part of principal over the period)
- repayment interval (usually a month, but there are also weekly installment loans)
- additional initial costs (fees usually paid by the applicant at the beginning of the loan period, fee for examining the application, for concluding the contract, for providing the loan)
- number of days (until the fee has to be paid from the loan).
The result will be some data to help the applicant compare different financial products:
- Total amount paid (includes installment amount plus additional costs)
- Total interest paid (amount of repayments minus principal, minus additional costs)
- APR (annual percentage of loan value).
Comparing financial products using RPMN only makes sense if the parameters entered in the calculation are the same. Otherwise, the comparison will lose its meaning.
Charges included in RPMN can be divided into two types:
– one-off (for example, a loan fee),
– regular (for example, insurance paid by the client on a regular basis, together with a monthly installment).
The National Bank of Slovakia emphasizes on its website in the section of Financial Consumer Protection that:
If the RPMN is not specified in the contract or the lower RPMN value is specified in the contract than it actually has, the loan or loan thus granted is considered to be interest-free and free of charge. Consumer credit is also considered to be interest-free and free of charge if the APRC exceeds the highest allowable amount (this is not the case for home loans!).
How does the repayment term of RPMN work ?
If the applicant enters a longer repayment period into the bank calculators, it usually gets a lower RPM. Why is it so? In general, the additional costs are paid by the applicant at the beginning of the repayment period, and since these costs are spread over the entire repayment period, the longer the time, the lower the APR. But, of course, the amount of the indicator is also influenced by the fact that financial institutions offer clients low interest rates if they choose a long repayment period.
Let’s look at the following example. The applicant needs EUR 5000, the loan parameters are in the following table. It is clear that the € 50 fee has increased the percentage of the APR, but the loan price, if repaid in 12 months, will be much lower than if we had chosen a long repayment period of 96 months:
The loan price for the 12-month repayment period is: UR 213.48.
The loan price of 96 months is: 1343.36 EUR.
Therefore, it is important for applicants to compare with the APR and to be cautious when applying for a loan or loan.
- initial costs