One of the clients provided me with a loan agreement for review with Loan and Credit Bank. I wanted to review it and assess to what extent TV commercials that praise the Bank’s products as the cheapest are real. For some time there has been a real revolution in the Banks.
Customers are cut as much as possible
For a long time interest rates on loans and borrowings have stood at a fairly low level and financial institutions, in order to make up for lower revenues, charge clients with commissions or high insurance costs.
At the same time, these costs are interrelated in such a way as to discourage the client from applying to the Bank to change the repayment terms.
So when I have such an opportunity, I ask the client to provide the contract so that I can look at it closely and assess as far as possible whether it is possible, for example, to opt out of credit insurance.
And I just have the opportunity to do a kind of analysis, this is the case of a client who has received a loan in Loan and Credit Bank in the amount of USD 72453.27 this year.
Guess what amount the client received at her disposal?
We will not bid, certainly be not guessed. She received USD 50,000 at her disposal. The rest was divided between the Bank and the Insurance Company.
So that you don’t have to count, I’ve already done it for you. The client was deprived of the amount representing 30.99% of the loan granted / USD 22 453.27 / with one move, of which USD 2890, i.e. 3.99% went to commission, USD 19562.38 / 27% / was transferred to TU Ergo Hestia.
As the proverb says, “The prudent always insured”
In this case, I do not mean the client and his foresight.
Foresight was demonstrated by the Bank, which secured itself in such a way as to knock the client’s desire to withdraw from insurance.
In one of the following paragraphs of the contract, the bank reserved that
“The commission charged was reduced by USD 13041.58 to USD 2890”.
And further the contract says that in the event of the borrower’s resignation from the additional product, the Bank will charge the Borrower a supplementary commission of USD 13041.58, which may be added to the balance
loans, or also taken from the account. The commission will be reduced in proportion to the unused contract period.Therefore, I will try to count how the client’s situation would look like if she wanted to opt out of loan insurance.
- The sum of the loan – USD 7,2453.27
- The outstanding amount after paying 7 installments – 69473.61 USD
- Number of loan installments 108
- Insurance premium – 19562.38 USD, of which the amount used was (19562.38: 108) x 7 = 1267.93 USD
USD 18294,45 remaining to be used, this is the amount that should be returned to the client in case of cancellation of insurance.
- Calculation of the supplementary commission for any payment by the customer:
(13041.58: 108) x 7 = 845.29
The remainder to be paid by the client 12196.29
Assuming that the client decides to opt out of insurance, the case would look like this.
1. The remaining insurance premium shall be deducted from the current loan balance:
6,9473,61 – 18,294.45 = 51179.16 USD
2. The remaining commission shall be added to the balance calculated above:
5,117.16 + 12,196.29 = 633755.45 USD