It should be emphasized that comparing the annual interest rates or the GPL of banking and non-banking sectors is not adequate as the GPL formula was originally created for calculating and comparing the annual interest rates on banking services, but banks are known to provide long-term services with a maturity longer than one. whereas non-bank creditors provide short-term services with a maturity of less than one year. In reality, non-bank creditors’ annual interest rates are not as astronomically high.
Banking and non-bank services
When comparing banking and non-bank services, you should remember this nuance, because in reality, the lower the loan repayment term, the lower the amount spent on interest payments – the benefit depends on the borrower’s payment discipline, ie the sooner the loan will be returned, the smaller will be its total cost. However, in the case of consumer credit, the situation is slightly changing.
Despite the fact that non-bank creditors in most cases provide short-term loans, in this case non-bank consumer credit is a long-term service with a repayment term of several months, just like bank loans. In this respect, it should be emphasized that non-bank quick credit is not the same as a non-bank consumer loan – a serious loan that provides for serious prerequisites and evaluation to get this loan at all.
These thorough checks and regulations significantly reduce the financial risks of creditors, so they can afford to grant higher loan amounts and lower payment rates. However, the interest payments on this loan are lower than for fast loans, but higher than for other banking services, such as mortgage or study loans, however, despite the relatively high interest payments, it should be remembered that no collateral is needed to obtain this loan, unlike already mortgages or study loans mentioned above.
When comparing the annual interest rates for both sectors, it should be borne in mind that the extra cost of the loan, which includes commissioning and issuing fees, is also to be considered, ranging from a few tens to up to EUR 150. It is often manipulated with different credit cost positions, that is, the APR is small, but the commission is high or vice versa – when evaluating and comparing services, these nuances need to be addressed in order not to increase the total cost of the credit.