Why can a 0% TIN loan be more expensive than a 6% TIN loan?

It seems incredible, but it is not. A loan with an interest of 0%, that is, a loan in which the borrowed money does not generate interest in favor of the lender, may end up being more expensive than one that does have interests. The reason? The commissions associated with the loan. Study, opening or early repayment expenses may involve a significant outlay that may end up being higher than interest. This phenomenon occurs in short-term loans. In fact, personal loans at 0% TIN are usually for a short period of time. In these cases, the entity is more profitable to impose an opening commission of, for example, 3.5% than 6% interest that, if the amount is small and the short term, hardly generate interest.

Let’s make numbers

Image result for interestThe best way to check the above is through an example. Let’s suppose that we want to hire a personal loan of € 2,000 to be repaid in 1 year. Entity “A” offers us a loan without commissions at 6% TIN and entity “B”, one at 0% TIN with an opening commission of 3.5%. Which is more expensive?

 

  Interest commissions Monthly fee Total debt TAE
Entity “A” 6% TIN Does not have € 172.13 € 2,065.60 6.16%
Entity “B” 0% TIN 3.5% on the amount borrowed (€ 70) € 166.67 € 2,070 6.83%

As we can see, the second loan, which has a nominal interest of 0%, is more expensive than the first. The trick to knowing the effective cost of the loan is to look at the APR that includes both interest and commissions. Returning to the previous example, the APR of the second loan is higher than the first, which reflects that it is more expensive.

But they are not always more expensive

That a loan to 0% TIN is more expensive than one with interest usually occurs when it comes to short-term loans. Another example: a loan of € 10,000 to be repaid in a year with monthly installments, without commissions and an interest of 6% TIN would cost € 327.96, while the same loan at 0% TIN and with an opening fee of € 3, 5% would cost € 350. However, if the period was 2 years the thing would change, while in the second case the cost would remain 350 €, in the first case the total cost in concept of interest would be € 636.94. In this second example, the TAE of the 0% TIN loan would be 3.49%, while that of the 6% TIN loan of 6.16%.

However, the entities know this, so finding a loan for a period of time that is not short to 0% TIN is almost impossible.

In any case, it is important to compare. If we find several offers with different interests and commissions, we must calculate how much we will end up paying for each one and study the APR to know which will be more expensive. It is important not to get carried away by the first offer they offer us and, above all, not to think that a loan without interest will always be cheaper than one that does.

What are the best personal bank loans?

Image result for best

Although private credit facilities offer very attractive loans, today we are going to focus on personal bank loans. You can find financing in banks with interest from 5% TIN and attractive conditions. Next, the 5 best personal loans of the moment:

  Term Amount TIN and TAE commissions Contact
Consumer Credit of Caixa Guissona Up to 5 years Up to € 30,000 5.60% TIN – 5.75% APR Do not Apply for
Unoe loan 15 years 1,800 – € 30,000 6% TIN – 6.94% APR Opening: 1.75%
Early repayment: 0.5 – 1%
Apply for
Orange Loan of ING Direct 17 years € 6,000 – € 40,000 6.95% TIN – 7.18% APR Do not Apply for
Openbank pre-approved credit 1 year Up to € 12,000 7.72% TIN – 8% APR Do not Apply for
EVO Intelligent Loan 18 years 3,000 – € 50,000 7.45% TIN – 8.09% APR Do not Apply for

 

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