How the loan interest rate is disguised in monthly fees

Bankers continue to use monthly fees calculated as a percentage of the outstanding loan to cover a share of the overall cost of the loan, although the times when banks used to fight the battle of promotional offers, with as low as possible nominal interest rates, are long gone.

The value of the monthly fee depends on the bank. For instance, BCR, the biggest bank on the Romanian market, charges a monthly fee of 0.02%, but it is always calculated based on the initial value of the loan.
At the BRD, the second-largest bank on the market, the fee is 0.1% of the volume, payable on a monthly basis. This takes the annual cost to 1.2%, compared with a 3.98% nominal interest rate per year.
“The logical explanation for calculating the fee as a percentage of the loan volume is directly connected to the risk involved. For a 1,000-RON loan, checks are not made on a monthly basis at the NBR and at the Credit Bureau to see how the client is faring, but they are compulsory for high-value loans. There are activities which are not seen, but which cost quite a lot. For small loans the risk is small, and the bank takes it on,” says a banker in justification. However, all this makes it difficult for consumers to compare the real cost of loans offered by rival banks, especially since the law does not force banks to display their annual percentage rate for mortgage-backed loans. Under the circumstances, the best solution remains to compare the repayment schedules that banks are required to supply before the signing of the contract.