Agencija za Bankarstvo Republike Srpske

Loan represents a cash amount which a bank extends to a client, for a certain period of time, under specific terms and for which the client needs to pay a fee - interest as the cost of using such funds. 

Loans, in terms of purpose, may be non-purpose or cash loans and purpose loans, such as: consumer, housing, investment and working capital loan. Only banks and other legal persons licensed by the Banking Agency of Republika Srpska can perform the lending activities. 

Interest represents a price to be paid to a lender (bank) by a debtor (client) for the use of cash funds. When an interest is expressed in percentage, it represents an interest rate which depends on a type of loan, time of use, collateral which secures the loan, market trends, competition, inflation rate, country credit rating, and other.  

Nominal interest rate is a percentage which determines how much you need to pay for a loan, and it is used for the calculation of regular interest rate on the extended loan. It can be variable or fixed. 

Conformal interest rate is a rate at which the same amount of interest is calculated, regardless of whether an interest is calculated once at the end of the repayment period or more than once within the repayment period. 

Proportional interest rate is a rate at which a different amount of interest is calculated depending on whether an interest is calculated once at the end of the loan repayment period or more than once during the repayment period. Namely, if the interest is calculated more than once during the loan repayment period a higher amount of total interest is calculated in comparison when it is calculated only once at the end of the loan repayment period. If a proportional interest rate on an annual basis is to be expressed on a monthly basis, it can be calculated simply by dividing the annual interest rate with the number of calculation periods, for example if an annual interest rate is 6%, the monthly interest rate will be calculated by dividing 6% with the number of months 12, and as a result the monthly interest rate is 0.5%.

Effective interest rate represents a real loan price and makes it easier for a client to consider and compare the conditions under which the same type of loan is offered by different banks. Effective interest rate, apart from a nominal interest rate, includes fees and commissions for loan approval to be paid by a client. In case of loans granted based on deposit, EIR also includes income from interest on deposit paid by a bank. However, it should be noted that there is a part of costs not included in the EIR, such as: changes in exchange rate for loans with currency clause, costs of collateral evaluation, costs of various certificates, confirmations, licenses and decisions issued by competent authorities, costs of Credit bureau, ... These costs are not included in the calculation of the effective interest rate as they are not known on the date of EIR calculation, however they may arise in the course of loan agreement realization, or do not represent income for a bank.       

Intercalary interest is an interest calculated and charged only from the moment of loan approval to the moment when you start to repay it, i.e. when you pay the first installment. Depending on a business policy, a bank may add the calculated intercalary interest to the debt principal and charge it via annuity/installments or at once - after the contracted loan period expires. If a bank calculates intercalary interest, before concluding the loan agreement, a person is advised to ask the bank officers when would be the most suitable date for loan to be put at disposal so that the intercalary rate can be as low as possible.

Default interest is an interest calculated and charged in case a client fails to meet the obligations in accordance with the provisions of the concluded agreement. 

EURIBOR or Euro Interbank Offered Rate represents a reference interest rate based on the average interest rate at which banks, at the international market, borrow funds from one to another. The value of EURIBOR is determined by the European Banking Federation on a daily basis. 

Loan annuity (installment) represents a regular, most often monthly, payment of a certain amount of money comprised of a part of the principal of a loan and part of the interest calculated under nominal interest rate which a client needs to pay on behalf of gradual loan repayment. In addition to monthly, the payment may be on a quarterly, semi-annual, annual basis, depending on the contracted conditions. Annuity, i.e. installment consists of a debt principal amount and of a part related to accrued interest. Annuity for loans to physical persons is usually the same for all repayment periods, except for the last one when it can vary. There is a method of calculation when annuity (installment) changes per each repayment period because the principal amount to be paid is always the same, while the interest is calculated on the remaining debt amount. In both methods of loan repayment, the interest is calculated on the remaining debt.

When concluding the loan agreement, a bank shall inform a client about significant loan elements by means of providing an overview of all loan repayment elements.  

Grace period is a period in which a loan is made available to a client, but the repayment of loan principal has not yet been initiated. During this period, the interest is usually calculated on total loan amount, hence a client is to pay a higher overall interest than in case the grace period has not been used. 

Loans with currency clause is a loan denominated in KM (BAM) and includes a clause by means of which a bank, in case of changes in the value of (KM) BAM to EUR during the loan repayment, is entitled to convert the remaining amount of loan principal to EUR at the middle exchange rate of the Central bank, by which a client is obliged to continue with the loan repayment according to the established (KM) BAM to EUR exchange rate by the Central bank on the day of loan maturity and payment.

Foreign currency loan, most usually Swiss franc loan, is a loan denominated in a certain foreign currency and includes a clause by which a loan repayment is related to the exchange rate movements of that foreign currency. For clients, this type of loan carries a high level of risk - risk of exchange rate changes, i.e. uncertainties for loan users in terms of overall obligations per loan taken, and therefore in terms of possibilities to meet the loan obligations within the contracted period. It is possible to protect oneself from this risk only if one receives regular monthly income (e.g. salary), used for the loan repayment, related to the same currency.  

Refinancing loan is a loan which a bank extends to a client for the purpose of settling the obligations stemming from one or more loans already granted to that client by one or more banks. By taking a refinancing loan, a client is in a position to settle one or more existing obligations towards banks, regardless of whether those obligations are due for payment or not. When taking a refinancing loan, a client should consider the cost-effectiveness of refinancing itself. Namely, regardless of the fact that a new loan can fulfill its basic goal, i.e. decrease the amount of monthly installment, a client should have in mind that the prolongation of repayment period increases the total costs in terms of interest. A client should also take into consideration that almost all banks charge commission for the prepayment of loan, which increases the costs of new loan approval.

Creditworthiness represents a financial ability of a debtor to repay the loan, increased for an appropriate amount of interest when due.

Each bank individually assesses client's creditworthiness based on the report of the Central Registry of Credits on a client's credit indebtedness and timely and regularly settlement of obligations, as well as based on other documentation (mortgage type, monthly income, and other).