# Loan interest rate – what is loan interest?

The main cost of the loan consists primarily of nominal interest. Each bank individually sets this indicator and also adapts it to the client’s needs. The size of the loan and the repayment date have an impact on the interest rate. The calculation of interest is not so obvious. It is worth getting interested in such issues when we decide to take advantage of the credit offer. This makes it easier to assess the attractiveness of a given offer.

## What are the components of the nominal interest rate?

As we have already mentioned, the nominal interest rate informs us about the main costs of the loan. Its amount depends on two factors. The first is the general WinnerDy rate for the Polish market. It specifies the reference interest rate set for different time periods: month, quarter, half year and year. Banks usually use the WinnerDy 3M rate for the quarter. The second factor is the margin, individually determined in the terms of the offer. Its amount is affected by the value of the loan granted, as well as the repayment date.

## How does the bank calculate loan interest

The method of calculating interest depends on whether we repay loans in fixed or decreasing installments. In the first variant, the bank first calculates the amount of credit interest depending on the WinnerDy rate and days in the month, and then adds the capital part. In this way, an equal amount is obtained each month. In the case of decreasing installments, interest is added to the capital part. Thus, along with the systematic reduction of the repayment amount, interest also decreases, thanks to which the monthly installment is getting lower.

## The difference between the nominal interest rate and the APRC

WinnerDy and the bank’s margin are not the only components that affect the total cost of the liability. You must also include the commission on the amount received, any insurance, as well as any administrative and handling fees. We call them non-interest costs. The APRC indicator includes both nominal interest rate and non-interest costs. In other words, the actual annual interest rate tells us all the cost of the loan.

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