Almost all companies usually use current account credit as a short-term financing mechanism, commonly known, at least in the lands of Lleida, as the policy.
It is important to differentiate this credit in current account from the bank loan..
The difference is basically in two points:
a.- Credit allows for the gradual disposition of the necessary amounts, in the amount and for the time desired. Whereas in a loan, the entire amount borrowed is available at one time.
b.- In credit, payment is made for the amount available and based on the time of availability. On the contrary, in a loan, payment is made for the total amount even if it has not been used.
The cost of a credit policy is made up of different items that we can break down as follows::
1.- The opening commission: based on the credit limit granted (amount that, in principle, we can have as a maximum), payable in one go at the beginning.
2.- Interest: calculated on the different current balances, depending on the duration of their validity and the contracted rate:
- Debtor (or normal) interest, for that part of the credit that has been drawn down, provided that it has not exceeded the contracted limit.
- Exceeded interest, for that portion drawn above the agreed credit limit.
3.- The availability fee: based on the average unused balance, this is what must be paid for the portion of the credit contracted (limit) and not used.
4.- Excess balance commission: on the largest balance exceeded, that is, on the portion used above the credit limit.
The liquidation of these credit policies
The settlement of these accounts is carried out by the so-called hamburger method, a system that performs calculations based on the balances shown in the account as the transactions that occur are recorded in chronological order.
I do not intend to give an example of the entire method of settling a credit account. I simply want to draw attention to a practice that has been taking place in recent times and which represents a hidden increase in the costs of a credit policy, which must be taken into account when negotiating with the bank. This is the method of calculating the availability fee, that is, the amount charged by the bank for the undrawn amount of the policy and which results from the difference between the credit limit and the average drawn balance.
Well, this availability fee, which has traditionally been calculated quarterly, is now being calculated by some entities on a monthly basis. This means that if the fee is nominally the same, but is calculated over twelve periods instead of four, it turns out that the availability fee has increased by 200%.
The best way to prove what has been said is through an example.:
QUARTERLY SETTLEMENT
Mr. PEDRO PEDRITO PEDRETE has taken out a credit policy with his bank under the following conditions:
- Credit limit: 100,000 euros
- Debtor interest (within the credit granted): 5% per year
- Availability fee: 0.250% quarterly
- Settlement by quarterly arrears.
We assume that amounts of 10,000 euros are available on the 1st, 12th and 27th of each month and that no amount is reimbursed, except for the accrued interest.
This results in a global settlement for amounts drawn and not drawn. 716,67 €
MONTHLY SETTLEMENT
- The same Mr. PEDRO PEDRITO PEDRETE has contracted a credit policy with his bank under the following conditions.
- Credit limit: 100,000 euros
- Debtor interest (within the credit granted): 5% per year
- Availability fee: 0.250% monthly
- Settlement for expired months.
We assume that amounts of 10,000 euros are available on the 1st, 12th and 27th of each month and that no amount is reimbursed, except for the accrued interest. This results in the following monthly settlements, for amounts available and not available:
First month: 277,78 €
Second month:326,11 €
Third month: 374,44 €
Recapitulating.-
If the settlement is monthly, the cost of the three-month operation is 978.33 euros While if the settlement is quarterly, the cost of the operation in three months is 716,67 euros. All this is a simulation, which may or may not fit a real model, but what is certain is that certain entities have carried out a hidden increase in credit policies, when they set a monthly settlement in nominal terms equal to the quarterly one. Therefore, in order to compare two different operations, it is best to convert the availability fee into annual terms, since 0.250% quarterly is 1% annually, while 0.250% monthly is 3% annually. An unused policy of 100,000 euros in the first case costs 1,000 euros and in the second case 3,000 euros.
The practice itself is not illegal, but I fear that it is not subject to the explanation and transparency that it should be.
