What is the commitment interest?
The provision interest is also called provision commission or provision interest. When taking out loans, provision interest is charged if there is a longer period between the date of disbursement stipulated in the loan agreement and the actual drawdown of the agreed loan amount. Two methods of calculation are used by the banks, the chargeable and the non-chargeable. Only the undrawn credit funds are taken into account in the eligible provisioning method; only for this part of the credit is the provision interest payable. The non-compensable method, the commitment interest, does not take into account partial utilizations of the loan and charges the commitment interest for the total amount of the loan. For new construction projects, the creditable provision method is often preferred because partial amounts of the loan, which are drawn down in the course of completion, are used to calculate the provision interest rate. The only reason is that the time between the day of maturity for payment and the actual payment of the partial amount is usually a longer period, which the bank charges using the non-creditable method.
Delays in the payment of credit will incur costs
In the case of medium and long-term loans, which are used for house construction, for example, cover may be uneven, and the loan must often be invested separately because the time of disbursement may be postponed due to irregularities in the construction project. In many cases the bank has an interest rate disadvantage because less interest is often paid when investing money than when granting loans. The commitment interest rate is intended to compensate for this difference so that the bank does not suffer any financial disadvantage as a result of the refinancing. Once a part of the loan is permanent not is needed more because the construction project can be completed more cheaply than planned and the remaining loan is no longer needed, the loan amount is reduced if the bank agrees. From the contractually agreed point in time, the commitment interest for the part of the loan that is suddenly not needed at all is no longer payable to the bank. In such a case, the borrower can then save the money for the provision interest and for the loan interest for the remaining amount of the loan.
When is the commitment interest to be paid?
The selected bank decides whether or not to charge the commitment interest, which is not required by law. The terms of the respective building loan contract stipulate whether a commitment interest rate must be paid. As of the current disbursement maturity of the loan amount, the commitment interest is due if this is noted in the loan agreement. The interest for the provision of the credit is calculated for the period up to the complete call of the credit amount. The lender usually grants a certain period of time during which no commitment interest is due. The period without interest depends on the bank and the amount of the loan. Some credit institutions extend the availability-free period without interest for a certain surcharge, while others do not deviate from the specified period at all. If the loan has not been drawn down by the agreed date, the banks will charge the provision interest of at least 0.25 per cent per month, the actual percentage will vary from bank to bank. The interest on the provision of the loan can be avoided if, for example, it is agreed with the bank that the total amount of the loan will be fully disbursed when the loan is ready for disbursement and transferred to a fixed-term deposit account of the borrower. will be.