The full cost of credit - what is it? The formula for calculating the CPM

Quite often, when planning to take a loan, we pay attention to advertising posters of organizations offering such a service. Having gained a favorable interest rate, customers are very surprised when they find out how much the total cost of the loan is.

The interest rate is not exactly what you get when you sign the contract. The amount of overpayment most often also includes the cost of paperwork and various commissions. So what does the full cost of credit consist of? What is it and how to calculate the amount of overpayment correctly? Let's try to understand this question.

What is the PUK?

So, what is the full cost of the loan? The definition tells us that this term summarizes all probable payments and monthly payments on the loan. According to Russian legislation, this amount should be indicated on the first page of the loan agreement, or rather, in the upper right corner. The information should be circled in a square frame and printed in the largest font that can be used in this case. The inscription should occupy not less than 5% of the entire area of the page. So if at the signing of the contract you see large figures enclosed in a black square frame - this is the total cost of the loan. What it is, in simple words can be explained as follows. This is the entire amount that you pay as a result of the loan agreement. It includes interest, commissions, non-recurring fees, payment in favor of third parties, and so on.

Where did this concept come from?

The only reason for the emergence of such a concept can be considered abuse of individual financial institutions. They concluded that, by promising low interest rates to customers, banks "forgot" to tell about all the accompanying costs, relying on the contract. The presence of additional payments can so low the low interest that it will not have any value at all.

The negative side of such lending is the inability of the client to realistically assess the outlook and calculate his strength in repaying the debt. It can end sadly. The client, unable to pay huge sums, is forced to resort to debt restructuring. At the same time, the credit history of the borrower suffers.

Of course, before the open fraud still does not reach - all the conditions and overpayments are openly registered in the contract. But not all citizens have sufficient level of education, so that without the assistance of a lawyer and an economist, one must understand its intricacies. All this led to the fact that in 2013 the government passed a law obliging all financial institutions to bring to the attention of customers such indicator as the total cost of the loan.

We hope that you understand this. Now let's talk about where you can learn it and how to calculate this figure yourself.

How do you know the full cost of a loan?

As already mentioned, such information must be publicly available. You can directly ask the manager: "What is the total cost of the loan?" What it is and where you need to look, you already know. So you can just look at the first page of the contract. If you do not see the right figure in the right place, there is an occasion to reflect, but do not hide anything from you. An honest bank does not withheld the sum of the CPM. This demonstrates the "purity" of intentions, and also forms a positive image of the institution in the financial market.

To understand how to calculate the full cost of a loan, you need to know what is taken into account in the calculation and what is not taken into account.

What is included in the PUK?

Not all amounts paid by the client are used to calculate the real rate. Calculation of the loan (the calculator is useful to you) can include such parameters:

• Frequency (frequency) of loan repayment;
• Payments for settlement and cash services;
• Payment of interest;
• Payment in favor of 3 persons whose services are necessary for issuing a money loan;
• Commission (fee) for the consideration of an application or the issuance of a loan;
• The cost of issuing a payment card or an electronic payment instrument placed at the time of concluding the contract;
• Payment for opening a current account.

In this case, the third persons can be:

• Developers;
• Expert-appraiser;
• notary;
• Insurance organization;

Since it is quite difficult to predict when a loan agreement will be concluded for several years, what the tariffs of third parties will be after some time, the ones that exist at the time of signing the contract are used in calculating the full amount of the loan.

What does not belong there?

It is worthwhile to know that not all payments related to credit processing can be taken into account when calculating the CPM. The exceptions are:

1. Expenses not accounted for in the terms of credit, but laid down by law.
2. Payment of penalties and fines for failure to comply with the terms of the loan agreement.
3. Commission, available in the contract and depending on the behavior of the client.

The last point can be attributed to the following:

• Penalty for early repayment of a loan.
• Commission for withdrawing money at an ATM. Some banks issue money only by transfer to a debit card. At the same time, if you try to withdraw the whole amount or part of it in a "non-native" ATM, an additional percentage will be withheld from you.
• The fee for providing information about the amount of debt via SMS or e-mail.
• The commission fee for conducting transactions in a currency other than the one in which the loan was issued. For example, if you have a ruble credit card, and you made a purchase in a Japanese online store.
• The commission charged by the bank for crediting funds coming from another credit institution.
• Payment for the ability to suspend banking operations (card lock).

Formula

An accurate calculation of this indicator is impossible in principle, since everything depends on whether the original credit conditions were met, down to the smallest detail. The Bank of Russia's instruction for calculating the CPM suggests such a complicated formula that not every bank employee can correctly calculate everything from the first time. What can we say about ordinary inhabitants.

In this article, we offer a much simpler (albeit fairly approximate) loan calculation. Calculator you still need, but the calculation does not take much time. So, the formula: UCS = SCp + Ck + N, where:

• SCr - the amount of the loan (loan);
• Sk - the value of all commissions, both single-time and periodic;
• P - interest rate;
• CPM is the total cost of the loan.

All the data in this formula are expressed in natural terms, or rather, in the currency of the loan. The total amount of commissions is calculated by adding all known values for the full period of the contract. The amount of the total repayment amount of the% rate can be found in the payment schedule. It must necessarily be provided by the bank.

Example of calculating the full cost of a loan

Let's see in practice how the full cost of the loan is calculated. Example:

• A loan amounting to 320 y. Ie for 3 years at an annual rate of 16%;
• Commission for the loan - 2%;
• Payment for cash services - 1,2%.

First, you need to determine the amount of principal interest, you can see it in a loan agreement. In our case, with an annuity payment method, the overpayment amount is 85 y. E.

We consider the size of the commission for issue: 320 y. E. * 2% = 6.4 u. E.

Now we will know how much the commission for cash services will be: (320 US dollars + 82 US dollars) * 1,2% = 4,86 у. E.

After all calculations it is possible to determine the total amount: 320 y. E. + 85 y. E. + 6.4 y. E. + 4.86 y. E. = 416.26 y. E.

In general, nothing complicated. Of course, this is not the whole amount to a penny, which will come out in the calculation of the complex formula proposed by the state. But the differences will not be too significant. For more accurate calculations, you can use various loan calculators, abundantly placed on the Internet.

What is the analysis of the UCS indicator?

Awareness of the full value of a loan first of all gives a clear idea of the real amount of the overpayment when the loan is repaid. Thus, at seemingly equal interest rates, you can choose the bank product that will be cheaper. True, do not forget that the assessment of the UCS does not take into account a lot of factors - in practice everything may not be the same as in the calculations.

For example, a person can find funds and repay loans ahead of schedule. In this case, the amount of overpayment will be significantly reduced. But it can come out in a different way. Failure to comply with the terms of the contract can lead to the imposition of penalties, which many times increase the amount of overpayment. Therefore, when choosing a banking product, you should not rely on the maximum values of the full cost of the loan, you should try to provide for all options.

State control of settlements

One of the important functions of the Central Bank is to monitor other credit and financial institutions. The purpose of such attention is to ensure that banks do not abuse their influence and do not overstate interest rates. In this regard, the Central Bank quarterly collects the necessary information and publishes the average market values of CPM for different types of lending. All credit institutions are obliged to take these factors into account. Offer the conditions under which the total value of the loan will exceed the market average by more than 1/3, banks are not eligible.

The CPMs disclosed to the Central Banks are indeed average. After all, they are calculated on the basis of information received from at least 100 largest creditors or 1/3 of all financial institutions of the country that provide a particular loan product.