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The premium as an additional fee increases the total cost of a loan

Loan interest to be paid 

Loan interest to be paid 

The premium is a surcharge (or surcharge) that the bank charges so that a borrower is paid 100% of the agreed loan amount. The loan interest to be paid anyway does not play a role in the calculation of the premium.

However, the fee increases the APR on the loan, which increases the total cost. As a result of the required premium, the borrower is charged by the bank for expenses such as advisory activities, opening accounts or drawing up contracts.

Discount for a discount or a discount. Assuming that a borrower wants to have a loan of 200,000 USD and this demands a discount of 3%, the borrower would not get the desired 200,000 USD but only 194,000 USD.

Replacement for the previously usual loan fees

Replacement for the previously usual loan fees

The discount is therefore deducted from the payout amount before the payout. Buyer’s premium and discount always relate to the so-called nominal value of a loan, i.e. to the agreed loan amount. Both types of fees are mainly used in the following areas:

  • loan
  • Share and fund transactions
  • Bonds

Repay interest, but 153,000 USD plus the normal loan interest.

  • So if you need a loan, you should find out in advance which bank is asking for a premium and then compare how high it is with the individual providers.

The premium is understood by banks and building societies as a replacement for the previously usual loan fees. In 2016, these were classified as “not lawful” in judgments of the highest judge.

This surcharge is of course not counted towards the savings amount, but against the home loan. The premium must be part of the annual percentage rate.

An example can illustrate how the surcharge applies to the home savings contract. A home saver concludes a corresponding contract for the home savings total of 100,000 USD. After a savings phase of 10 years, he saved 40,000 USD and accordingly received a loan of 60,000 USD with a premium of 3%. That means that he doesn’t have to pay back 60,000 USD, but 61,800 USD.

  • Not all building societies require such a premium for a building society contract. It is therefore worth comparing the individual providers with each other. Ultimately, it’s about a lot of money, because the higher the home savings sum, the higher the total costs could be in the end.

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