Interest is the price the borrower pays to the one who lends the same money. In other words, interest is actually the amount paid to “rent” a certain amount of money for a certain period of time.
The amount of money that is borrowed is called the principal and the percentage of interest paid on the principal is called the interest rate.
What is the nominal interest rate?
The nominal interest rate is the net interest rate at which the loan is granted, and it represents the price of money at which the bank lends. It is placed in the contract and on the basis of it the repayments of the loan are calculated.
What is the effective interest rate?
The effective interest rate is one of the most important criteria when evaluating the payoff of a loan because it expresses the true value of the loan much more accurately than the nominal interest rate. It shows how much money a customer, or borrower, will pay back to a bank or other financial institution.
The effective interest rate, in addition to the nominal interest rate, includes all fees and charges payable to the bank or financial institution for the approval of the loan.
The effective interest rate does not include all other fees that are necessary for granting a loan, loan or loan, and which arise outside the bank or financial institution. These are, for example, notary fees and life insurance policies most often required when applying for home loans.
What is the difference between interest on loans and interest on credit?
Borrowings involve small sums of money with a short repayment period. As a result, interest on loans is less than the interest rate on a loan that is repaid over a long period. Due to the short repayment period, interest rates on loans are usually fixed, while they can be variable in loans. This is also one of the advantages of taking out a loan because they are quickly repaid, and thus there is room to re-borrow if the need arises.
When are the interest rates on the loan determined by law?
When money is borrowed between two natural persons, there is no statutory minimum on interest on loans. But when a company as a legal entity lends to a natural person, things are significantly different. It is not possible to pay off a loan without an interest rate, with an interest rate not lower than three percent a year.
This is the minimum interest rate that a legal entity is subject to when paying a loan to an individual. If it is lower, it is considered a benefit, that is, a profit that a natural person would not otherwise realize, and tax should be paid.
More favorable interest on loans to entrepreneurs
Banks and other financial institutions assist in the economic growth of Croatian companies. In agreement with the Croatian Chamber of Economy, the Crafts Associations and the Croatian Bank for Reconstruction and Development, they offer more favorable interest rates on loans to entrepreneurs.
These are special lending programs backed by money from European funds. This type of cooperation enables more favorable short-term borrowings and loans intended for financing working capital.
Interest rates on loans are on average lower and more favorable than the standard offer, all with the aim of better development, hiring new workers and expanding in the market. Lending to a business owner is possible with minimal conditions.
Interest on loans given to family members
Borrowing money to family and friends is a real challenge for relationships. Often, such relationships end up infamously because one side stops returning money. When borrowing, it is mandatory to regulate things in writing and then certify the contract with a notary public.
The date of the loan, the amount borrowed and the method and repayment period should be clearly indicated. When it comes to borrowing interest, you can arrange a loan without interest or with interest.