Effective interest rate

In the past few years, the financial and economic situation of the state depends directly on the state of the banking system. It is for this reason that the Russian banking system must be constantly strengthened and effectively developed. This is absolutely inevitable, because a huge number of banks continuously create each other's competition in the battle for future customers. At the moment, banks provide a huge range of financial services for individuals and businesses.

One of the main methods of obtaining income is regularly lending to legal entities and individuals. It is precisely for this reason that it remains at the moment the main type of banking activity. This service is provided for a variety of schemes and directions: lending for home purchases, business lending, consumer lending , car loans, and much more. The term "effective interest rate" is closely related to the concept of lending.

Clients attract credit organizations through a variety of loan products and shares, low interest rates, and even quite interest-free loans, profitable rates and convenient schedules. Such marketing techniques in most cases are only a bank trick aimed at attracting customers. No bank will dare to do business at a loss, they will in any case for any credit products receive the necessary profit. In the event that the interest rates are low or zero at all, the bank receives profit from various commissions from customer service. It is for this reason that each client should know what the effective interest rate is. If the borrower does not have the necessary skills and knowledge to calculate it, then the loan specialist should be engaged in consulting with clients on the terms of the contract concluded with the bank.

The effective interest rate is the absolute cost of a loan, which, in the calculation process, takes into account not only the nominal interest rate, but also the costs of its registration and maintenance. It is distributed for the entire term of the loan, and it is expressed as a percentage of the amount that was issued. Russian legislation says that since July 2007, all Russian organizations are required to demonstrate to the borrower the calculation of the effective interest rate on loans that are issued. It is necessary for the clients of the bank, so they can understand what overpayments they will incur on the loan. It often happens that the effective interest rate exceeds the nominal interest rate by 2-3 times. It can be calculated using many different methods. For users of the Internet, specialized calculators are available, located on bank portals or on the bank's website, where the client wants to contact. The calculation can be made only if you know absolutely all the payments charged for the time of using the loan.

Before issuing a loan, the borrower should study in as much detail as possible all the items and the most important terms of the contract, and in particular the section describing how the effective interest rate should be calculated. It will be most correct to study the conditions of all banks to select the most suitable and affordable loan. However, not all borrowers evaluate this indicator alone, for some it is preferable to contact reliable banks with a certain type of reputation.

The effective interest rate on the deposit is calculated almost as well as in the case of a loan, only for a client this indicator means how much it will receive money as a result of using one or another contribution.

It turns out that the client must evaluate how effective it will be for the percentage that will result in the result. If it is a loan, then a person can choose the right bank, relying not only on his reputation, but also on the effective interest rate, which will give him a greater advantage.