How does the bank charge interest on loans?


Bank loans show a very varied picture of their interest rates, and sometimes changes cannot be followed. It may be interesting to take a closer look at how ‘loans are made’. What is the sure source of how much interest and repayments we will have in our case?

Only the sure customer will be worth it

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The company has to give the credit for what it is worth the risk. And the risk of contracting with you disappears with your money.

If we think that banks are mopping up huge loans, we are very far from the reality. If, say, 10% of the lending business is profitable a year, the bank is already making a loss that threatens its very existence. A financial institution with such a profile can make very easy losses and make it much harder to profit from its activities.

Only insiders know that in 2011 and 2014, for example, the Hungarian banking sector recorded losses of $ 500 billion. No wonder financial institutions strive for long-term relationships with trusted, serious clients.

The more unstable the customer, the higher the interest

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The biggest, ‘most serious’ type of loan is a home loan. Compared to a $ 20 million item, a personal loan of 250,000 is small.

It takes a lot of effort for a bank to recover money from a bad customer, and it can only sell collateral properties at a price.

During the pricing of a home loan, the lender considers a lot of circumstances, from the financial situation of the given family to the location of the property.

Using a sophisticated mathematical formula, they derive the ‘likelihood of failure’ from data such as education, age, or the number of years the subject has been working at the workplace.

Covered real estate is no matter where it is, as unfortunately houses are for sale in many municipalities without a local real estate market. From the bank’s point of view, their value is zero, even though they are worth millions in ‘material cost’.

Why not trust online calculators?

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Having a family or a partner is a good sign for the lender because they are more willing to repay.

For this reason, online loan calculators, which discard installments based on only a few data, should be considered at most indicative. They serve to raise awareness. Real, so-called risk-based pricing is not that simple.

Based on the indicators detailed above, the bank draws a default rate of 0 to 100% for the borrower and determines how much the loan is for. For example, a double risk client will no longer receive a home loan for 4% interest, but 5%.

Therefore, it is worth drawing as positive a picture of yourself as possible, as it may cost you tens of thousands of forints a month if you do not look like a stable debtor.

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