Lesson 2 of 3 · 8 min
The number that swallows the other numbers
The interest rate is not the cost of a loan. One figure includes every charge the lender levies, and anything missing from it cannot be charged later.
Two lenders can quote the same interest rate and cost very different amounts. Up-front fees, documentation charges, valuation fees and anything else attached to the facility are real money, and quoting a rate without them is quoting half a price. The all-in figure exists so the halves cannot be separated: it is defined as the annual cost of credit including the rate and all other charges.
The statement has to carry a computation sheet showing how that figure was arrived at, and the loan's amortisation schedule over its full tenor. So it is not a number to take on faith — the working is attached. Charges the lender collects on behalf of somebody else, such as legal and valuation fees, count towards the figure as well and have to be shown separately, with receipts provided for each payment.
| Line | Lender A | Lender B |
|---|---|---|
| Quoted interest rate | Same | Same |
| Up-front fee | Lower | Higher |
| Charges collected for third parties | Fewer | More |
| The all-in figure | Lower | Higher |
| Which one the brochure leads with | The rate | The rate |
Put these in order
Put these in the order that actually answers 'what does this loan cost me?'
- Compare that figure against the other lender's statement
- Check the separately-disclosed third-party charges
- Read the computation sheet showing what went into it
- Find the all-in cost figure on the key facts statement
Check yourself
1 / 3
Kabir asks
What does the all-in annual cost figure include?
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