It is even difficult to imagine how widespread lending to both individuals and legal entities is in Russia. Most banking clients have no idea how the total cost of a loan is calculated. There are those who guess about the existence of hidden fees, someone does not pay attention to the term CPM at all. But there are those who understand that the overpayment of a loan, which bank managers often talk about, is a completely different concept.
Most often, the consumer turns his attention to the interest rate that the bank sets as its remuneration. But the choice of the best option may also depend on different fees, commissions, insurance, etc. These factors are recommended to be taken into account when analyzing existing loan products.
The total cost of the loan - what is it
It is necessary to strive to ensure that each borrower understands what the full cost of a loan is. The stated rate for a loan product, which provides for monthly repayment, is always less than its full cost. These parameters can be equal to each other, but only in such a situation when the borrower, according to the terms of the agreement concluded with the bank, is obliged to repay all the debt at the end of the loan term at a time.
The total cost of a loan is the most important indicator that is highly recommended to consider when choosing a financial product. CPM is the real cost of the loan, which is expressed as a percentage per annum. This term has been known on the territory of our country for a long time. And in the Law on Consumer Lending, you can find the formula by which the UCI is calculated, and the requirements for indicating this value in the body of the loan agreement. Previously, this concept was replaced by another - "Effective rate on a loan".
Banking organizations deliberately distinguish between the concepts of CPM and interest rates. Additional commissions and insurance are deliberately not taken into account in the stated percentage. This is a definite marketing decision to attract a consumer. And it really works!
Formula for calculating the total cost of a loan
A clear understanding of what the CPM is in a loan, as well as the method of calculating this indicator, allows the borrower to compare loan offers. This means that the consumer will be able to choose the most profitable financial product for himself.
The numerical value of the UCS is calculated by adding up all accrued commissions, the loan amount, and the amount of the accrued annual rate. In order for the client to be able to independently and accurately calculate this indicator, credit organizations offer a variety of loan calculators for use.
Indicators that are taken into account when calculating the UCS
The indicator in question is the percentage of the total loan amount, that is UCI is the price for the use of credit funds.
According to the law, all information about the PSK must be indicated in the loan agreement. The CPM ranges should also be available at the point of origin of the loan.
In the process of calculating the full cost of the loan must be taken into account:
- Payments made by the body of the loan.
- Interest payments.
- All types of commissions, fees for opening accounts and other payments in favor of the bank, specified in the loan agreement. It should be noted that the final decision on the application may depend on these payments.
- Payment for servicing credit cards to which the borrower will make payments on the loan.
- Payments to third parties, if provided for by the loan agreement.
- Obligatory insurance payments and payments under a voluntary insurance contract.
How does the figure for the total cost of a loan change after the introduction of the new formula?
In addition, the Law on Consumer Lending clearly establishes parameters that in no case should be taken into account in the process of calculating the total cost:
- Payments that are made based on the requirements specified in the law, and not in the loan agreement (for example, such a payment is collateral insurance).
- Fines and penalties paid by the borrower due to non-compliance with the undertaken loan obligations.
- Commission for repayment of the loan earlier than specified in the agreement.
- Payment for providing information regarding loan debt.
In case of obtaining a credit for the card, then in the calculation of the CPM also not taken into account:
- Commissions received by the bank for replenishment of the account by third-party creditors.
- Payments charged for transactions requiring conversion (that is, in a currency other than the account currency).
- Payments for the suspension of card transactions.
- Payments for exceeding the card overdraft limits.
- Commission for withdrawing funds from third-party ATMs.
- Payment for reissuing a bank card.
- Commission for stop-lists.
In addition, there are a number of payments that are considered illegal, but some banks continue to charge them from their clients (for example, fee for maintaining a loan account or for early repayment of a loan). In this case, the consumer can apply to Rospotrebnadzor for the protection of his interests.
In addition, the consumer of the credit market needs to understand that the value of the CPM can be influenced by himself. This does not happen during registration, but in the process of repayment of the loan. This can be explained by the fact that this indicator is calculated by banks, taking into account the entire term of the loan.
In case of early repayment, the debtor influences the full value. After all, the less all the costs of the borrower, the faster he pays the entire amount of the debt. In these cases, the bank's client saves on the interest rate, and sometimes also on insurance.
Pay special attention
The publication of the already mentioned Law on Consumer Lending was intended to stop the manipulations by banking organizations associated with the low financial literacy of Russians.
But the very existence of payments that are not included in the calculation of the full cost of the loan makes it possible for credit institutions to set large commissions. However, there is a caveat: the client himself chooses whether or not to use this or that service. But banks always strive to make the borrower, in fact, forced to use a specific service. And it is here that financial institutions can include all those payments that previously had other names.
Therefore, it is very difficult to accuse the bank of charging unnecessary commissions. The contract will certainly indicate each clause entailing an overpayment. And if the bank demands an unreasonable overpayment, then the consumer always has the right not to use banking services. That is, it is an independent decision of the borrower.
To prevent the bank from getting its benefits on the ignorance of the citizens who turn to them, the population is advised to at least superficially study the basic foundations of the economy in order to increase the level of their financial intelligence. If a citizen independently analyzes loan offers in the process of choosing a suitable loan, then it is recommended not to hesitate to conduct a detailed interrogation of the manager on each clause of the contract being concluded. And only in this case the consumer will receive a reliable answer to the question of how much it will cost.
When choosing a loan, the borrower examines the loan products of a number of banks, pays attention to the advertising campaigns of credit organizations offering low interest rates on loans. But few people know that
What is the total cost of a loan?
The total cost of the loan (CCC) is the amount that the client actually pays to the bank for using the funds, the real cost of the loan.
The practice of disclosing the real price of a bank loan did not appear in Russia immediately, but after several years of indignant misunderstanding between credit institutions and borrowers. Psychologically, the price of a loan at 11% per annum for 15 years seems attractive, but as a result, for the entire repayment period, you will have to pay twice as much as it was taken. The matter was even more complicated by the abundance of commissions, in percentage and with a fixed amount. Some interest was calculated on the balance and others on the original loan amount. In such a situation, it is impossible to determine the real cost of a bank loan without complex calculations.
The CPM is expressed in%, but does not correspond to the annual interest rate under the contract. This is because the price, in addition to interest, may include payments for:
- for processing the application and checking the borrower's data;
- for registration and maintenance of a credit account;
- for issuing bank cards under a loan agreement;
- for operations in the process of registration and support of the loan;
- the cost of insurance, if the conclusion of an insurance contract is a condition of the bank for issuing a loan, or determines the amount of rates and commissions on it;
- other expenses of the client directly related to the issuance of a bank loan, including mandatory payments to third parties.
The full cost of the loan must be calculated even before it is received, because lending terms are known in advance.
It is important to keep in mind that the list of costs included in the CPM is not endless. It cannot be expanded by analogy, in the opinion of one of the parties to the transaction, or by the decision of any other persons and organizations.
In the Russian Federation, since 2013, the law “On consumer credit (loan)” has been in effect. In the next year, 2014, the formula for calculating the total cost of a loan became mandatory for banks (we will talk about it below).
The CPC does not include:
- Borrower's expenses incurred not under the terms of the loan, but based on the requirements of the law. This may apply to certain types of insurance as well.
- Penalties and additional costs associated with violation of payment discipline.
- Additional costs for servicing the loan, which are a consequence of the client's choice. An example is an increase in the maturity of a loan that results in a recalculation of the total interest.
- Various kinds of commissions and additional payments for certain methods of loan repayment: in cash, through terminals of other banks, using third-party payment systems.
- Payment for the movement of funds on a bank card issued under a loan agreement.
This implies that the total cost of the loan is not necessarily equal to the amount that the borrower will actually pay to the lender. Because in the process of repayment are possible:
- Delays in payments or early repayment. For the first, a penalty is charged, the second promises a recalculation of interest and a decrease in the total cost of the loan or penalties, if provided by the contract.
- Changes in the terms of loan repayment. Such a possibility is often spelled out in the contract, but its occurrence is linked to external circumstances.
These and other circumstances may affect the amount actually paid by the borrower. But if the changes at the time of obtaining the loan are not known, or their occurrence does not depend on the lender, then they will not be included in the total cost of the loan.
It is important that the full cost of the loan is known in advance, even before receiving it. If the bank conceals information about this, then the transaction should be invalidated, the lending agreement should be terminated, and the funds spent by the client should be returned to him.
For recipients of bank loans, it is the value of the total cost of the loan, and not the interest rate, that should be the criterion for evaluating and comparing different loan products.
How to calculate the total cost of a loan?
The process of calculating the real cost of a loan is carried out according to complex formulas, which are not necessary for an ordinary consumer to learn. However, it is useful to understand how such a calculation works.
First of all, let's clarify - all payments within the loan are calculated according to their own formulas. The main interest is calculated separately, commissions and other payments are separately calculated (depending on the terms of the agreement - on the original amount or on the unpaid balance). Then all the numbers obtained are summed up and make up the total loan price.
The following formulas for calculating the cost of a loan will help you to find out payments, and not the principal amount, from which interest and other relative values are calculated.
The first of the calculation formulas looks like this:
UCS = i x BWP x 100;
here the UCI is the total cost of the loan; ЧБП - the number of base periods; i - interest rate in the base period. The base period is understood as the period between the obligatory loan payments.
This equation is given in the text of the Law on Consumer Credit (Loan) and applies.
The upper part of the fraction, with the letters ДК, is the amount of a specific payment. If it is made to the address of the bank, then the amount is accepted with a positive sign, if it is the issuance of a loan - with a negative one. The second bracket contains the value of the payment in the full base period, in the first bracket the payment for a part of the period is calculated. All the results obtained are summed up and in the end equal to 0. This means the equality of cash flows received by the bank and paid by the borrower. For pen-and-paper calculations, this equation is rarely used. It is more convenient to calculate the UCS by substituting data into an Excel table with already entered formulas.
A simplified formula for calculating the cost of a loan will help you make an independent calculation:
The calculation for it is as follows:
- the sum of all credit payments (S) is divided by the amount received from the bank (S0);
- one is subtracted from the result of division;
- the resulting number is divided by n - the number of years of loan repayment, and multiplied by 100.
The total is presented as a percentage. It can be compared with the basic interest rate and find out the amount of additional overpayment.
UCS calculation example
We will calculate the total cost of a loan of 1 million rubles for 2 years, at 10% per annum and with an additional commission of 12 thousand per year. The type of payments is annuity, i.e. in equal shares in all periods.
The payment schedule will be as follows:
monthly payment | by principal | interest payments | commission | unpaid balance |
|
The total payment on the loan is 1 million 131 thousand 478 rubles 32 kopecks. Let's insert this figure into a simplified formula:
((1 131 478,32/1 000 000)-1)/2*100 = 6,57%.
The total cost of the loan was just over 6 and a half percent per year, i.e. 13.15% in two years.
Why doesn't this sound like the stated rate of 10% per annum?
Because interest was charged only on the amount of the unpaid balance, but there was a commission charged on the original loan amount.
This simple example shows how much reality differs from what seems to be comprehensible before calculation.
How to calculate the cost of a loan online?
Calculating the full cost of a loan, using a general (rather than simplified) formula, manually can be a very long exercise in mathematics. Waste of time is guaranteed here, and the risk of mistakes is very high. But, to the delight of users, the Internet offers a lot - programs that already have all the formulas necessary for calculating, and all that remains is to put your data in the appropriate forms.
In the practice of finding a loan, calculators with the ability to select a loan that meets the specified parameters, with the function of searching for a loan for the required amount and with a suitable interest rate, will be especially useful. Here is a good example of such a calculator.
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As you have already seen, comparing loans is a rather laborious and time-consuming exercise. In addition, in order to compare the conditions, for example, for mortgage loans from different banks, you need to be quite well versed not only in lending, but also in insurance, and also be a good lawyer. To simplify the procedure, the Central Bank of Russia introduced such a concept as the "total cost of a loan" (the concept of "effective interest rate" was previously introduced). For deposits, the concept of the total value of the deposit can be used.
Formula for calculating the total cost of a loan
as follows:
- d i - date of the i-th payment;
- d 0 - date of initial payment - is the date of transfer of funds to the borrower;
- n is the number of payments;
- DP i - the amount of the i-th payment under the loan agreement. bi-directional payments are reflected with different mathematical signs. So, the payment to the borrower of credit funds is reflected with a minus sign, refunds and commission payments are reflected with a positive sign;
- PSK - the full cost of the loan, reflected in% per annum
When determining the full cost of a loan, all payments related to the issuance of a loan (commission for issuance, consideration of an application, etc.) are reflected in the initial payment.
What is included in the calculation of the total cost of the loan:
1. Exactly known payments under the loan agreement, which are payments related to the conclusion and execution of the loan agreement:
on repayment of the principal amount of the debt on the loan;
on payment of interest on a loan;
fees and commissions for execution of a loan agreement, consideration of a loan application, issuance of loan funds, opening and maintaining an account;
commissions for settlement and cash and operational services
if the calculation is carried out on a loan on a bank card - commissions for the issue and annual maintenance of credit cards
2. Payments to third parties, if the obligation to pay these payments arises from the conclusion of a loan agreement
- insurance of real estate objects or vehicles
- payments to notaries and notaries
- appraisal of pledged property
The calculation of the total cost of the loan does not include
borrower payments that do not arise from the loan agreement, but from the requirements of Russian legislation. For example, for a car loan, this will be a CTP, which must be concluded in any case;
payments related to non-compliance by the borrower with the terms of the loan agreement. For example, late payments;
payments of the borrower for a loan, which depend on the decision of the borrower or on the option of his behavior. For example, commission for early repayment, commission for receiving cash in cash, payment for providing information on the status of debt.
If the loan agreement provides for various types of loan accruals, depending on the borrower's decision, the calculation of the total loan amount is calculated based on the maximum possible loan amount (overdraft limit), the loan term, and equal payments under the loan agreement.
Calculation example:
Basic loan conditions:
| date | Interest payment | Principal payment | Commissions and other payments | Remainder debt at the end months |
|---|---|---|---|---|
| 01.01.2011 | - 50 000,00 | |||
| 31.01.2011 | 833,33 | 4 166,67 | 1 500,00 | 45 833,33 |
| 28.02.2011 | 763,89 | 4 166,67 | 500,00 | 41 666,67 |
| 31.03.2011 | 694,44 | 4 166,67 | 500,00 | 37 500,00 |
| 30.04.2011 | 625,00 | 4 166,67 | 500,00 | 33 333,33 |
| 31.05.2011 | 555,56 | 4 166,67 | 500,00 | 29 166,67 |
| 30.06.2011 | 486,11 | 4 166,67 | 500,00 | 25 000,00 |
| 31.07.2011 | 416,67 | 4 166,67 | 500,00 | 20 833,33 |
| 31.08.2011 | 347,22 | 4 166,67 | 500,00 | 16 666,67 |
| 30.09.2011 | 277,78 | 4 166,67 | 500,00 | 12 500,00 |
| 31.10.2011 | 208,33 | 4 166,67 | 500,00 | 8 333,33 |
| 30.11.2011 | 138,89 | 4 166,67 | 500,00 | 4 166,67 |
| 31.12.2011 | 69,44 | 4 166,67 | 500,00 | 0,00 |
| Total | 5 416,67 | 50 000,00 | 7 000,00 | 0,00 |
In this example, the total cost of the loan was 55,49 %
As you can see, the total cost of the loan can be very different from the interest rate declared and advertised by the bank. In addition, you should not confuse it with such a concept as a rise in the cost of a loan, which largely depends not on the interest rate, but on the term of the loan.
The total cost of a loan is hard enough to calculate using a calculator, but Excel can be of great help in calculating it. In spreadsheets, this calculation is carried out using the IRR (Internal Rate of Return) function. If you need to compare several programs, download
Some credit organizations, with their irresistible craving for profit, sometimes get into such courage that one involuntarily thinks: “Is there any kind of control over these guys at all? Or is this lawlessness not controlled by anyone? "
Don't panic, friends! The situation is under control, and there is "control over these guys"! All of them are "under the hood" of the Central Bank of the Russian Federation. One of its functions is to calculate the average market total cost of credit for all types of consumer loans, as well as to ensure that credit institutions' CPM does not exceed the limit values. But let's talk about everything in order.
How the CPM from the Central Bank of the Russian Federation curbs the appetites of creditors
The average market value of the total cost of a loan from the Central Bank of the Russian Federation is a tool that regulates the activities of creditors in the field of consumer lending. The algorithm for the operation of this tool is spelled out in parts 8, 9, 10, 11 of the sixth article of the Federal Law of December 21, 2013. No. 353-FZ "On consumer credit (loan)". The legislator has established the following rules:
- 1. Terms of calculation and publication of the average market CPM. Part 8 of Article 6 of Law No. 353-FZ states that the Bank of Russia calculates and publishes the average market value of the full cost of the loan on a quarterly basis, no later than 45 days before the start of the quarter in which this value is to be applied.
- 2.
The procedure for determining the categories of consumer loans by the Bank of Russia. This paragraph regulates part 9 of article 6 of Law No. 353-FZ. Here's what it says:
The categories of consumer loans (loans) are determined by the Bank of Russia in accordance with the procedure established by it, taking into account the following indicators (their ranges) - the amount of the loan (loan), the repayment period of the consumer loan (loan), the availability of collateral for the loan (loan), the type of lender, the purpose of the loan, use of an electronic means of payment, availability of a credit limit.
According to this list of criteria, the Central Bank groups consumer loans, and then calculates the average market value of the UCI for each group. - 3. Initial data for calculating the average market UCS. According to part 10 of article 6 of Law No. 353-FZ, the Central Bank of the Russian Federation calculates the average market value of the QCI based on data received from at least 100 largest creditors or at least 1/3 of the total number of creditors providing loans of the corresponding category.
- 4. UCS limit values set by the Central Bank of the Russian Federation. Part 11 of Article 6 of Law No. 353-FZ states that the total cost of a consumer loan should not exceed by more than 1/3 the average market value of the CPC calculated by the Central Bank for loans of this category.
Summarize. So, financial activity in the consumer credit market is regulated by Federal Law No. 353-FZ, which does not allow greedy creditors to rob their customers, setting sky-high values of the CPC. And this is great, friends!
Where are the market average of the total cost of loans published?
Information on the average market values of the total cost of consumer loans (loans) is posted on the website of the Central Bank of the Russian Federation. By clicking on the specified link, you will find yourself on the page with this data.
On its website, the Central Bank of the Russian Federation publishes the market average values of the CPM for the following financial institutions:
- Credit organizations.
- Microfinance organizations.
- Credit consumer cooperatives.
- Agricultural consumer credit cooperatives.
- Pawnshops.
No later than 45 days before the start of the new quarter, the site will post pdf-files with calculations from the Bank of Russia. Any visitor can download the file of interest to him for free and get acquainted with the current information on the average market values of the total cost of the loan. These data are presented in a table with four columns. It looks like this:
- First column- the ordinal number of the category line (lines within the main categories are indicated in the format of sub-clauses, for example, 1.1, 1.2 or 2.1, 2.2, 2.3, etc.).
- Second column- the name of the category of consumer loans (loans).
- Third column- average market values of the total cost of consumer loans (loans). The same weighted average calculated value is indicated here, obtained on the basis of data from at least 100 largest creditors or at least 1/3 of the total number of creditors, in accordance with part 10 of Article 6 of Law No. 353-FZ.
- Fourth column- limit values of the total cost of consumer loans (loans) in annual percentage. This is the very “bar” above which no lender providing loans of this category has the right to “jump”. Limit values are calculated very simply - 1/3 of its value is added to the average market CPM from the third column, in accordance with Part 11 of Article 6 of Law No. 353-FZ.
As you can see, the table is compiled in a simple and user-friendly format, and most importantly, there is nothing superfluous in it.
Friends, this is where we end the cycle of publications on the full cost of the loan. We hope we managed to reveal this topic as much as possible, and you found the answers to all your questions.!
20 minutes. reading
Updated: 28/05/2019
What is the total cost of a loan? Why is this indicator needed? What expenses are taken into account when calculating it? Is it possible to calculate the UCS value yourself and how to do it correctly? Why is the calculation wrong in most cases? These and many other questions are answered in this article.
If the name of the organization is spelled out in the contract (for example, an appraisal office), then the calculation will be made at the rates of this organization.
It happens that the contract provides for several third parties. For example, insurers with a choice. Then the calculation will be based on the tariffs of one of them.
If the circle of insurers is not limited to the bank, then the rates of ANY insurance organization known at the time of calculation are used.
That is, the value of the indicator written in the contract will be approximate!
Important! The bank must disclose information about the insurance company at the rates of which the calculation was made. The bank is also obliged to indicate that when concluding an agreement with another insurer, the value of the UCS will be different.
When accounting for insurance premiums in the UCS indicator, the inaccuracy may be associated with other features of the calculation.
The law allows (clause 5 of article 4 in the comments of the Consultant) to calculate the cost of third-party services at the company's tariffs without taking into account the personal characteristics of the borrower.
For example, in case of car insurance, without taking into account age or driving experience and the characteristics of the car (performance, brand, year of manufacture).
Then the bank is obliged to notify the borrower about it.
When determining the UCS value, the tariffs in effect at the time of calculation are used. They may change in the future. Then the UCS in the contract will differ from the actual one.
6 The price of insurance, when the indemnity for the insured event is received NOT by the borrower or his relative.
For example, life and health insurance for the amount of the loan will be included in the PSK, if, upon the occurrence of an insured event, it will be received not by the borrower, but by the bank to repay the loan.
7 Insurance, if it determines the terms of the loan. Including terms, rates and amounts.
For example, Gazprombank on consumer loans indicates that the interest rate increases by 0.5 percentage points if there is no insurance contract or its validity is terminated. The bank must take this insurance into account.
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What does the bank not take into account when calculating the CPM?
1 Payments are required by law.
For example, CMTPL is not taken into account in the calculation.
2 Payments in case of violation by the borrower of the contract.
For example, late payment penalty. Moreover, it is impossible to determine in advance whether the borrower will pay on time or late.
3 Payments depending on the decisions of the borrower. They must be related to the loan and provided by the contract.
For example, withdrawal commission or early payment fee.
4 Price of collateral insurance, for example, CASCO.
5 Insurance with conditions:
- insurance registration does not affect the bank's loan decision and the loan price;
- the borrower receives additional benefits from these services (for example, with a car loan, the rate of the life insurance tariff differs from the rate without a loan);
- the borrower can cancel these services within 14 days.
For example: if the life and health insurance of the borrower with the car loan meets these conditions, the bank MAY not add insurance to the calculation.
Important. These exceptions allow banks to vary the terms of loans so as not to take into account insurance.
What's really going on? What do Sberbank and Alfabank take into account in PSK?
The law provides general provisions and does not provide guidance on including in the calculation of each specific insurance or other additional payment. This gives rise to different interpretations and allows creditors to consider in a way that is more profitable for them.
The law provides for many exceptions, which also plays into the hands of bankers.
In addition, bankers sometimes do not know how to correctly interpret an article of the law. This is evidenced by their requests to the Central Bank for clarification.
Click on the picture to enlarge
If the bank's actions are legal, but not all payments were taken into account in the calculation, there is no point in complaining and writing statements. It is important to understand that your loan is associated with certain expenses. They may not be included in the cost calculation, but they will be provided for by the contract - read it carefully.
Make an independent calculation taking into account all possible payments. Then surprises will not happen and you will be able to competently manage your own money, planning upcoming expenses.
The PSK is calculated by the bank and the borrower independently.
The bank makes the calculation and notifies the borrower:
1 When placing loan offers on the official website. The bank is obliged to disclose information about the terms of the loan. The UCS range is listed for each product. This method should be used at the stage of analysis and selection of loan proposals.
True, in some cases, you have to look for this information on the site.
For example, Gazprombank, describing the terms of loans, at the very end gives a link to the section "Tariffs. Rates. Quotations", where you can find the range of CPC. But here, too, you first need to select a specific section, then open the file in "pdf" format.
2 When drawing up a loan agreement. Or when the conditions for it change. Here you see the CPM at the time of the contract. You can check with your calculations taken from the first paragraph.
The UCS value is indicated on the first page of the agreement in the upper right corner in a square frame. The indicator is printed in large capital letters in black.
3 In case of early repayment of a part of the debt.
How to calculate the full cost of a loan yourself?
Why count the PUK yourself?
- you need to get the exact value before signing the contract.
The bank's website indicates the range of UCI values, since the rate and other loan conditions differ for different borrowers;
- if you need to compare different loan options;
- if there is no trust in the bank, which does not take everything into account in the calculation. For example, Alfabank takes into account the cost of assessing collateral for a mortgage, Sberbank does not.
The calculation of the full cost is different from the calculation of the interest rate on a loan. The calculation formula is given in article 6 of the law.
Click to enlarge image
The formula is complex, and not always even a banking specialist understands the meaning and procedure for calculating it. Let's figure it out.
The total cost of the loan corresponds to the indicator of the internal rate of return. In financial mathematics, it is referred to as IRR (internal rate of return).
The value corresponds to the interest rate at which the net present value (NPV) is zero.
What is Net Present Income? First, let's define what income, expense and net income are.
Let's illustrate the cash flows on the loan in the amount of 120,000 rubles, for a period of 12 months at a rate of 28%.
Provided that the payment is annuity (all payments to repay the loan have the same amount), the value of each payment will be 11,581.72 rubles. These payments are shown in light blue and represent loan income. Income from the point of view of the bank that will receive these amounts.
The expense on the loan for the bank is shown in red - this is the loan amount itself - 120,000 rubles.
| payment date | payment number | payment type | amount, rub. |
| 10.Jan.18 | 0 | consumption | -120000 |
| 10 Feb 18 | 1 | income | 11580,72 |
| 10.Mar.18 | 2 | income | 11580,72 |
| 10 Apr 18 | 3 | income | 11580,72 |
| May 10. 18 | 4 | income | 11580,72 |
| June 10, 18 | 5 | income | 11580,72 |
| 10.Jul.18 | 6 | income | 11580,72 |
| 10 Aug 18 | 7 | income | 11580,72 |
| September 10, 18 | 8 | income | 11580,72 |
| 10.Oct.18 | 9 | income | 11580,72 |
| 10 nov 18 | 10 | income | 11580,72 |
| 10.dec.18 | 11 | income | 11580,72 |
| 10 Jan 19 | 12 | income | 11580,72 |
| Total | 18968,64 | ||
The bank's net income (overpayment for the client) is the difference between all income and expenses. In our case, it turned out 18,968.68 - in the table it is highlighted in bold.
Now let's look at the net present value. All loan payments are made at different times (dates are indicated in the table). Issue date - red. All others - blue - payments with an interval of 1 month.
Money loses its value over time. Today I will buy a large chocolate bar for 100 rubles, and in a year it will cost 120. That is, in a year, 100 rubles will not be enough to buy a chocolate bar. It means 100 rubles. today and a year later, different amounts. In our example, 100 rubles. today correspond to 120 rubles in a year.
Discounting is bringing future money to its present value. That is, if you bring to the present moment (discount) the cost of a chocolate bar next year (120 rubles), you get 100 rubles.
All loan payments must be discounted by the date of the loan. Net present value is the sum of all discounted payments.
We need to determine the discount rate at which the net present value will be zero. That is, today's 100 rubles. will be equal to 120 rubles in a year. This rate is IRR. It will correspond to the value of the total cost of the loan.
In the loan example, this is the rate at which the overpayment will be zero. That is, a loan of 120,000 rubles. will be equal to the sum of all discounted customer payments to the bank.
For self-calculation, you will need the EXEL program.
Column "B" contains dates. The first date (or rather, zero) - January 10, 2018 - the date of approval of the loan. On this date, we do the calculation (discount) and determine the IRR or the full cost of the loan.
In column "C" we indicate the amounts. The first amount is negative - the approved loan. The rest are positive - all payments on schedule.
EXEL has a built-in function for determining the IRR (in our case, the UCS), it is called "NETWORK".
To calculate in cell "C15" enter the equal sign and the name of the formula "PURE". In the figure, the formula is shown in the formula bar - underlined in red.
Then, in parentheses, first enter all the values (blue font in the formula and blue range in the table), then the dates (green font in the formula and green range in the table).
We press "enter" and we see in the cell "C15" the value 0.3204 (lower figure). This is the total cost of the loan. Only it is expressed, not in percent, but in fractions of a unit. To express it as a percentage, we multiply the value by 100. The result is seen in cell "C16". It turned out 32.04.
So, with a loan for a period of 12 months, in the amount of 120 thousand at a rate of 28% per annum, which corresponds to a monthly payment of 11,580.72 rubles, the CPC will be 32.04.
Important. In this example, loan payments are considered as input. How and where can the borrower get them?
In the loan agreement in the payment schedule. If there is no contract yet. You need to do the calculation of payments yourself. To do this, you can use any online loan calculator.
Enter in the form all the known parameters of the loan, click "Calculate" and see the result. The amount of the monthly payment is circled in red in the figure.
Choosing a calculator for calculating the UCS. For example, this one: www.ipotek.ru/calc2n/results.php?matr=4
We indicate the parameters of the loan (take the previous example):
- term 12 months;
- amount 120,000;
- rate 28;
- date of approval January 10, 2018
If necessary, enter information about insurance and other additional payments in the form. For now, we will count without insurance.
We get 32.04%, which corresponds to the value calculated in EXEL.
Whether the loan term and early repayment affect the calculation
To answer the question, let's compare a loan in the amount of 120,000 at a rate of 28% for a period of 1 and 2 years.
For a loan for a period of one year, the PSK turned out to be 32.04%, with an increase in the term by 2 times - the value will decrease to 31.97%. In the figure, these values are shown in white.
With an increase in the term, there is a decrease in the total cost, albeit insignificant.
Now let's determine the impact of early repayment on the amount of the UCS. For a loan for a period of 1 year, we plan to pay off the balance of the debt (principal debt) ahead of schedule along with the 10th regular payment.
For a loan for a period of 2 years - together with the 14th.
The figure shows that the change in the UCS is ambiguous. With a loan term of 2 years, early repayment increases the PSK, with a term of a year, it decreases.
Case of life
Maxim: “The problem arose like this - there was a mortgage. Initially, the contract indicated a CPM of 14.3%. After each early repayment, the schedule was recalculated. They gave a new value for the UCS. As a result, after the second early payment, the total cost increased to 16.4% ??? What this is connected with is not clear. I wrote a claim. They gave an answer, but there is something incomprehensible with reference to some formulas, calculations, etc. "
The complexity of the calculation and interpretation makes the indicator inconvenient for personal use.
Let's compare the same options in terms of the amount of overpayment.
For a loan for a period of 2 years, the borrower will overpay 38,079 rubles to the bank, which is much more than for a year - 18,969. Early repayment definitely reduces the overpayment, regardless of the loan term. The indicator is clear. Therefore, in the case of early cancellation, it is better to focus on the final overpayment, and not on the CPM indicator.
Again, we will refer to the amendments to the law. In accordance with which, banks will additionally calculate and bring to the borrower the PSK in monetary terms. It corresponds to the overpayment (if you do not delve into the question of its composition, taking into account commissions and insurances).
Does UCS Affect the Calculation Method?
Annuity and differentiated payments.
Loan repayment payments can be annuity (the same) and differentiated (decreasing by reducing the amount of interest).
Let's make a calculation for the same example.
| Index | date | Differentiated payments | Annuity payments |
| date of approval | 10.Jan.18 | -120 000,00 | -120 000,00 |
| payment 1 | 10 Feb 18 | 12 853,70 | 11 580,72 |
| payment 2 | 10.Mar.18 | 12 362,74 | 11 580,72 |
| payment 3 | 10 Apr 18 | 12 378,08 | 11 580,72 |
| payment 4 | May 10. 18 | 12 071,23 | 11 580,72 |
| payment 5 | June 10, 18 | 11 902,47 | 11 580,72 |
| payment 6 | 10.Jul.18 | 11 610,96 | 11 580,72 |
| payment 7 | 10 Aug 18 | 11 426,85 | 11 580,72 |
| payment 8 | September 10, 18 | 11 189,04 | 11 580,72 |
| payment 9 | 10.Oct.18 | 10 920,55 | 11 580,72 |
| payment 10 | 10 nov 18 | 10 713,42 | 11 580,72 |
| payment 11 | 10.dec.18 | 10 460,27 | 11 580,72 |
| payment 12 | 10 Jan 19 | 10 237,81 | 11 580,72 |
| OVERPAYMENT | 18 127,12 | 18 968,64 | |
| UCS | 0,3189 | 0,3204 | |
| PSK,% | 31,89 | 32,04 |
Differentiated payments are more profitable for the borrower. In them, the amount of overpayment and the value of the UCS is less.
Accurate and approximate calculation method.
When accurate, take into account the exact number of days in each month and year. That is, in the month 30 or 31, and in February 28 or 29. There are 365 or 366 in the year.
In an approximate way, each month consists of 30 days.
We will make a loan calculation on the same terms with a differentiated payment.
| Index | date | Accurate payments | Approximate payments |
| date of approval | 10.Jan.18 | -120 000,00 | -120 000,00 |
| payment 1 | 10 Feb 18 | 12 853,70 | 12 800,00 |
| payment 2 | 10.Mar.18 | 12 362,74 | 12 566,67 |
| payment 3 | 10 Apr 18 | 12 378,08 | 12 333,33 |
| payment 4 | May 10. 18 | 12 071,23 | 12 100,00 |
| payment 5 | June 10, 18 | 11 902,47 | 11 866,67 |
| payment 6 | 10.Jul.18 | 11 610,96 | 11 633,33 |
| payment 7 | 10 Aug 18 | 11 426,85 | 11 400,00 |
| payment 8 | September 10, 18 | 11 189,04 | 11 166,67 |
| payment 9 | 10.Oct.18 | 10 920,55 | 10 933,33 |
| payment 10 | 10 nov 18 | 10 713,42 | 10 700,00 |
| payment 11 | 10.dec.18 | 10 460,27 | 10 466,67 |
| payment 12 | 10 Jan 19 | 10 237,81 | 10 233,33 |
| OVERPAYMENT | 18 127,12 | 18 200,00 | |
| UCS | 0,3189 | 0,3205 | |
| PSK,% | 31,89 | 32,05 |
The exact method yielded less overpayment and UCI.
Example of calculating the total cost
Full cost of consumer loan
Why is the total cost of the loan different from the interest rate?
The UCI value differs from the interest on the loan for two reasons:
1 Interest payments are not the only consideration in calculating the CPM. In these cases, the UCI value will always be higher than the interest rate.
2 Annual interest rate and CPR are mathematically different indicators. The IRR value corresponds to the internal rate of return (IRR).
IRR characterizes the average annual return on the loan for the bank or the cost for the borrower. The formula is based on discounting and takes into account that the money you pay to the bank “today” is worth more than the money paid at the end of the loan term.
Therefore, in most cases, even if only interest payments are taken into account, the CPM is higher than the interest rate.
Conclusion
The total cost is an informational indicator for choosing the optimal loan by the borrower.
Banks calculate the CPM as a percentage. As part of the PSK, they take into account insurance and other payments in different ways. The calculation is complex and ambiguous. It is not always possible to correctly compare different options.
Therefore, the full cost must be calculated by yourself, including all expected payments. This will make it possible to realistically evaluate each loan proposal.
You can calculate the cost in the EXEL program or using one of the many loan calculators. It is important to calculate all the options in one way (only on one calculator), because different calculators give different results.
If you are new to financial mathematics, it is better to focus on a different indicator. Decide how much money you want to take and how long you really expect to repay. Consider the amount of overpayment for different options. Choose the one where you pay less.
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