Cost of credit – how to calculate the total cost of credit?

We pay the money borrowed to the bank or loan company. Contrary to appearances, interest does not have to play a major role. Equally important, and sometimes even more important, are the fees and commissions that make up the total cost of the loan.


A bank, credit unions or a loan company providing money for us for a certain period of time will expect remuneration for this service. This is understandable – as depositors putting their savings to the bank, we also expect to receive a certain bonus for them. In the case of loans, however, the lender’s remuneration consists of many elements, not just interest. That is why it is worth knowing what the total cost of a loan is and what it conceals.

The definition of the total cost of credit can be found in the Consumer Credit Act – a legal act that applies to most loans for non-residential purposes. It reads as follows: these are all costs that the consumer is obliged to bear in connection with the consumer credit agreement.

Credit costs – interest

Credit costs - interest

Interest is calculated on the outstanding debt, based on the interest rate set out in the loan agreement. For example, if we borrow PLN 1,000 for one year and the interest rate on the loan is 10%, then we will pay PLN 100 for the funds borrowed to us (assuming that the repayment is a one-off payment, not divided into installments).

The maximum amount of interest is limited by law. This means that no bank or loan company can demand a higher salary than that resulting from the statutory formula. The limit is calculated based on the NBP reference rate and is twice the sum of the reference rate and 3.5 percentage points.

The total cost of interest in our loan can be checked in the information form that we must receive when applying for funding. We can also check it in the credit calculator, where we will calculate the repayment schedule, divided into capital and interest.

How much does the loan cost? Fees and commissions

How much does the loan cost? Fees and commissions

In addition to interest, the total cost of the loan also includes various types of fees and commissions. Their amount depends on the price list of the bank or loan company. They can be in the form of a flat rate (e.g. PLN 40 for preparing an application) or as a percentage (e.g. 2% of the loan amount).

Theoretically, the function of fees and commissions is to cover the costs that the lender incurs in connection with specific activities (e.g. customer verification in databases). In practice, however, sometimes fees are responsible for most of the total cost, and there are even loans where the interest rate is zero and the lender’s only remuneration is commissions.

In the information form presented to us by the bank or loan company, we should find information about fees and commissions charged in connection with the conclusion of the contract.

The total cost of the loan also includes the costs of additional services accompanying the loan. First of all, it is about insurance that is required by the lender. Contributions may be collected together with installments or once.

The total cost of credit – how to calculate?

The total cost of credit - how to calculate?

We will calculate the total cost of credit by adding all of the components listed by us. These are:

  • Interest,
  • Fees and commissions,
  • Insurance premiums and costs of running an account for loan repayment, if we cannot choose the account ourselves
  • And the costs of other additional services, if they are mandatory or required to receive a loan on certain conditions.

The total cost of the loan does not include only some elements – independent of the lender. This applies to notary fees related to, for example, establishing collateral in the form of a mortgage.

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