How much does the credit cost?

What makes up the cost of a loan

When you take out a loan, you repay not only the amount you received but also a charge for using the money. This is how lenders make their profit. The cost of a loan is usually made up of several parts:

Interest — the main charge for the loan. It is calculated using the interest rate stated in the contract.
Arrangement fee — a one-off charge when the loan is issued. Not all lenders charge it.
Service fee — a regular charge, for example monthly, for maintaining the loan account.
Other charges — for example, for changing the contract or payment schedule, deferring a payment, or receiving paper invoices. You can often avoid the paper invoice fee by receiving invoices by email.

Late payment penalties are a separate matter: you can avoid them by paying on time, but if you fall behind they quickly increase the cost of the loan.

How interest works

The interest rate is usually stated per year but charged in parts — typically every month on the outstanding balance. So the longer you use the money, the more interest you pay. Even at the same rate, a long-term loan costs considerably more than a short-term one.

So before applying, think about the shortest term over which you can comfortably repay the loan. The monthly payment will be higher, but the total interest will be lower. Just don’t choose a term so short that the payment becomes unaffordable.

Example. A loan of 3,000 EUR at 15% a year:

over 24 months — a payment of about 145.46 EUR, about 3,491 EUR to repay in total, about 491 EUR in interest;
over 36 months — a payment of about 104 EUR, about 3,744 EUR to repay in total, about 744 EUR in interest.

The 36-month payment is about 41 EUR lower, but you pay 250 EUR more in interest. Fees are not included in this example — with them, the loan would cost even more. You can calculate your own options with the loan calculator.

How to compare the cost of different loans

Comparing loans by interest rate alone is not enough: one lender may have a lower rate but higher fees. That is why the key figure for comparison is the annual percentage rate (APR), or effective rate. It includes both interest and mandatory fees, so it shows the full cost of the loan on an annual basis. Along with the APR, look at the total amount to repay — it is the clearest indicator of what the loan will actually cost you.

Some lenders offer new customers a first loan with no interest or fees if it is repaid on time. In Latvia, such offers are collected in the “Free credits” section. For lenders by country, see Credits in Latvia, Credits in Europe — North & West and Credits in Europe — South & East.