Loan Commissions to cover the expenses of the loan entails.


The amount of commissions

The amount of commissions

A commission is that amount of money a financial entity receives to cover the administrative and management expenses that a loan entails. The amount of commissions varies from one entity to another and, in addition, is usually imposed as a percentage of the total amount borrowed. This percentage can range from 0% to 3% depending on the financial institutions and the type of loan requested. In this sense, commissions can be thought of as a type of tax charged to the loan applicant.

In general, the interest rates that are advertised in loan offers show a low rate that is attractive to the customer. However, to achieve this, financial institutions include an opening rate in the amount financed. If not, when we are granted the loan we would be asked to pay the opening fee and this sounds contradictory since – precisely – we are asking the entity for money.

Let’s give an illustrative example of this situation. Suppose for a moment that we request $ 10,000 to an entity and it is the case that the opening rate, that is, the initial payment we must make to the entity to lend us the money is 2%, that is, 200 $. So, if we were not financed this opening fee, we would have to pay these $ 200 when we received the loan. The result would be that we are granted a lower amount: $ 9800. This sounds weird, right?

For things to make sense, the solution is to finance the loan amount plus the opening rate, that is, about $ 10,200 in total. Therefore, we are financed a larger amount but the interests are lower. However, they apply to an amount slightly larger than requested. The result is that a lower interest implies approximately the same money to be paid each month. However, it sounds good that the interest is low, right?

The most attractive option involves more money in total to be paid over the life of the loan.

The most attractive option involves more money in total to be paid over the life of the loan.

In addition, it is not the same to pay an opening fee at the beginning of the loan that is financed throughout all the months that it lasts. While commissions are not negotiable entity (as are the prices that they determine) it is interesting to consider that the opening rate itself is negotiable. advertisements

This implies agreeing the payment method we want for our loan. Another factor to consider is the payment term. The opening rate is a fixed percentage of the requested amount of money (to be paid at the beginning or financed as well) but the payment term influences the total amount we are going to pay, that is, the interest we will pay more. Considering all these parameters before applying for a loan is key to saving money in the long term.

This is an entry on a series of articles related to the generalities and characteristics of loans and credits where we try to bring the user information that we consider of great interest before applying for any of the types of loans that exist in the financial market.


Leave a Reply

Your email address will not be published. Required fields are marked *