# Credit interest rate – what is it and how much is it?

When looking for the cheapest loan, we usually look at the interest rate on the loan. The interest rate on the loan is the price of the loan – but what is the interest rate on a cash loan or mortgage and what does it make up?

The interest rate on the loan is the basic cost associated with the repayment of the liability to the bank. It determines the amount of interest and depending on the offer, the interest rate can be fixed or variable. What can the loan interest rate be?

## What is the interest rate on cash loans?

The interest rate on cash loans is regulated by the Act of May 12, 2011 on consumer credit (i.e. Dz. U. 2018, item 993) and the Civil Code. According to their provisions, the maximum interest rate on a bank loan or loan may not exceed twice the statutory interest, which is equal to the sum of the reference rate of the NatBank (currently 1.5%) and the rate of 3.5%. Therefore, the bank cannot offer a loan with an interest rate higher than 10%.

However, this is not all costs associated with servicing the loan. In addition, banks usually add a commission, preparation fee or insurance required. The Consumer Credit Act specifies, however, that the maximum amount of non-interest loan costs may not be higher than 25% of the total loan amount plus 30% of the total loan amount in each repayment year (in the second and subsequent years non-interest loan costs may not exceed 30% of the amount loan).

Interest rates in banks may not exceed 10%, but you should pay attention to the fact that the interest rate on the loan is not the only cost associated with taking it. In addition, how to calculate the loan interest rate is worth knowing how to include commission costs in the calculations.

Banks must now also present the client with the APRC (Actual Annual Interest Rate), which shows the interest rate on the loan after taking into account all non-interest costs.

## Mortgage rate

Despite general restrictions – the interest rate on cash loans will be different and the mortgage rate will be different.

The interest rate on cash loans is much higher than for home loans – even if the mortgage is taken for a much longer period and the bank has more time to charge interest. It also requires a much higher creditworthiness rating from the borrower.

The mortgage interest rate is in most cases a variable interest rate – it is calculated based on the base rate and the bank’s margin – as a consequence, you can most often find the mortgage interest rate expressed as the sum of the Windorta rate and 2-3% of the bank’s margin.

The variable interest rate on cash loans is much rarer and applies mainly to long-term cash loans – over 3 years.

In turn, the mortgage interest rate may be higher than it results from the simple bill indicated above. Banks under the low own contribution insurance (SWD insurance) and bridge insurance may increase the margin by several percentage points. Therefore, the Windorta or Windorta 6M rate and the bank’s margin should be increased by the increase in the margin on these insurances.