Home  Journals  Finance and Credit  19(499) - 2012 May

The cost of the loan and how it is affected by commission payments the borrower

Available online: 16 May 2012

Subject Heading: LENDING

JEL Classification: 

It is shown that the investment effective interest rate (EPS) is a measure of cost of the nominal sum of a loan, and operational EPS - a measure of cost of the real sum of a loan derivation of means from economic circulation of the borrower for current payments of the basic debt. Thus investment EPS gives essentially underestimated values of cost of the credit in comparison with the operational. Without taking into account reinvestment operational EPS there is the bottom estimation a little different from value of IRR, without a reinvestment operational EPS is the bottom assessment which is a little different from value of internal standard of profitability which is the top estimation of cost of a loan It is established that at the expense of the commissions raised by the creditor from the borrower in addition to payments of service of the credit, cost of short credits can exceed the interest rate several times. The simple formula of the bottom estimation of cost of the credit which can widely be applied by borrowers at independent calculations is received.

Keywords: calculation, loan, lender, borrower, yield, effective interest rate, EPS, IRR, reinvestment, discounting

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ISSN 2311-8709 (Online)
ISSN 2071-4688 (Print)

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