AirBank Loan - Recommended
TL;DR ✨
Everyone knows the cliché: “You can love your bank.” The author did not believe it. Then the time came when he needed to take out a loan. They were not kidding.
Banks are crafty; they play with numbers. Given how dismal even primary-school knowledge of the rule of three can be—or the secondary-school level, where advanced graduation-level mathematics amounts to knowing the Pythagorean theorem—it is no surprise that banks have created quite a jungle of figures.
From the archive
This article was first published on 2016-08-01. It is also a snapshot of its time, so some details and recommendations may no longer reflect the current situation.
Everyone knows the cliché: “You can love your bank.” The author did not believe it. Then the time came when he needed to take out a loan. They were not kidding.
✨ Study First, Rewards Later¶
Banks are crafty; they play with numbers. Given how dismal even primary-school knowledge of the rule of three can be—or the secondary-school level, where advanced graduation-level mathematics amounts to knowing the Pythagorean theorem—it is no surprise that banks have created quite a jungle of figures.
First of all, before borrowing any amount, it is worth stopping to think and defining two terms:
- Asset—anything that brings in money.
- Liability—anything that takes money away.
An asset is an investment, such as buying land in order to rent it out. A liability is a nice holiday somewhere in the Caribbean. To afford a Caribbean holiday, it helps to have some income that will pay for it.
The world is not black and white. A mobile phone is a typical example. An unlimited plan with 10 GB of data for a certain monthly price can be an asset if the phone serves as a source of income. Conversely, it is a liability if it is used to consume infotainment content.
A foolish person takes out a loan for Christmas, a holiday, or minor purchases. There is a famous quotation:
“Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like.” ~ Will Roger
A smart person, by contrast, takes out a loan for an asset that will pay for holidays, Christmas, and other small things. So before considering a loan, people should use their brains.
✨ đź“ť Where to Begin?¶
With study. It is not enough to say: a person will borrow CZK 100,000, repay CZK 10,000 for ten months, and that will be the end of it. The bank wants something out of the deal too; investors also need new Ferraris and caviar. The first value of interest is therefore the interest rate. It is a number that says how much will be paid to the bank for the loan. Interest works its magic with several figures. They may look like the same thing, but they are not. Why?
- With CZK 1,000 at 10% p.a., repaid monthly for one year in calculated installments of CZK 87.92, the overpayment is CZK 54.99.
- With CZK 1,000 at 10% p.a., repaid monthly for two years in calculated installments of CZK 46.14, the overpayment is CZK 107.48.
- With CZK 1,000 at 10% p.a., repaid after one year in a single CZK 1,000 installment, the overpayment is CZK 100.
At first glance, everything looks clear and straightforward. But every bank has its own method of calculating the interest rate, because interest can be calculated in different ways. One method, for example, defines a year as 360 days. How convenient for someone! In numerical terms, there are different formulas and different calculation bases. In practice, that reduces the whole figure to an indicator of nothing.
And that is not all. Every bank has other “hidden” costs, such as:
- fees for concluding the contract
- loan administration and maintenance
- transfer of funds
- increase coefficients
The APR (Annual Percentage Rate) accounts for these hidden costs through a relatively complex calculation. It is a statutory requirement, meaning that ALL costs associated with the loan are represented in this figure. The rule is therefore simple: the lower the APR, the more advantageous the loan is for the consumer. It is a useful, simple guide. There is no need to get bogged down in the number here. A calculation can also be found on Wikipedia. But should everything on Czech Wikipedia be trusted? Hopefully the Czech Trade Inspection Authority and the EU defined it correctly. Even so, things may not be quite so rosy. Compare the APR calculators from dTest and AirBank. The figures differ by 0.264...?
Now consider a specific loan. The choice should be guided by APR, and after comparing offers the author arrived at two banks: mBank and AirBank, with mBank about one percentage point cheaper. He contacted mBank, supplied all the income documentation, went through a genuine paperwork battle, and waited for approval. A notice arrived saying that his loan application had been rejected, without explanation. So he tried AirBank. A month later, mBank contacted him to say that everything was ready and to ask why he had not come in to sign. He told them where to go and continued with AirBank, where the discussions were pleasant and the paperwork battle was limited to what was strictly necessary.
✨ đź“ť Now for the Pleasant Practical Part¶
The screenshot shows an old example of a model loan from AirBank. The APR is 12.56% p.a. The loan amount is CZK 120,000, with an overpayment of CZK 13,395.61. The loan is set for 20 months at CZK 6,961 per month. The interest column lists the bank's “commission” for each payment.
Plotting the installment-to-interest ratio as percentages produces a fine chart showing how the commission develops over time:
Adding up all the interest produces a figure equal to the overpayment. In other words, subtracting 13,395.16 from 133,396.16 leaves almost CZK 120,000. :-)
Finally, AirBank offered a genuinely pleasant bonus. When borrowers repay their obligations early, the bank waives CZK 5,000. So if a person is not foolish and calculates the loan as a “worst case scenario,” having an adequate reserve creates an excellent opportunity to obtain investment financing. Combined with everything above, there is nothing else to say but: