What’s a damnum?

A damnum is the difference between the nominal amount a borrower borrows and the amount paid to him. The damnum is part of the explicit agreement between borrower and lender. For example, it represents a handling fee. Shares can also be granted a damnum. There are two forms of damnum, the agio and the disagio.

How is the damnum specified?

The damnum is part of the contract between the borrower and the lender and is set out in writing. Within the framework of the agreement, it must also be decided whether a premium or a discount will be charged. Credit institutions usually have an approach that they prefer and offer to the borrower.

The damnum is usually expressed as a percentage. It refers to the nominal value.

Example: Calculation of Damnum

If you borrow 10,000 euros from a credit institution, the bank can arrange a discount with you to cover the processing fees. In this example it is assumed that the damnum is 8 %.

This would result in a damnum of 800 euros. When this amount is charged depends on whether it is a premium or a discount.

Premiums and discounts

Agio and Disagio form the two variants of damnum. If you as a borrower agree on a premium, your lender will initially pay you the full agreed nominal value. When you repay your loan, however, you pay a little more until you have not only repaid the nominal value, but also the damnum. The premium is therefore also referred to as the premium.

As a rule, a borrower does not pay back the borrowed amount in one piece, but gradually, i.e. in instalments. In the case of a premium, each rate is typically composed of a part of the nominal value and a part of the discount.

If you, as a borrower, are granted a discount they do not receive the full amount when the loan is disbursed. Instead, the amount actually paid out is reduced by the damnum. For this reason, the discount is also known as a discount.

Example: Agio and Disagio in Practice

Imagine you borrow 10,000 euros from a credit institution and the premium is again 8%. You agree to repay the loan in 10 installments of 1,000 euros each.

In addition, one tenth of the premium is added to each rate: in this case, you do not pay 1,000 euros, but 1,080 euros per rate if the premium is taken into account.

With a discount, you agree a nominal value of 10,000 euros with your lender, but you receive only 9,200 euros. The difference corresponds to the discount. In this example, you still owe your lender the full 10,000 euros. If you have agreed on the same instalment payment as in the previous example, you pay 1,000 euros per instalment.

Consequences for a borrower

Because of the damnum, it often happens that a borrower has to take out a higher loan. For example, if you want to take out a loan of 10,000 euros to invest exactly 10,000 euros in a construction project, you will no longer have enough money after deducting the discount. Therefore, you must take out a correspondingly higher loan, which already takes this difference into account.

However, lower nominal interest rates are often agreed due to a discount. The effective interest rate indicates the total amount of interest payable, taking into account the nominal interest rate and discount.