The size of our monthly repayment is influenced by several factors, including:

• The amount we borrow
• The interest rate
• The repayment period
• Any fees and charges associated with the loan

For example, extending the repayment period can reduce our monthly repayment, making the loan appear more affordable in the short term. However, this does not necessarily mean the loan will cost less overall. Because interest is typically charged over a longer period, the total amount repaid may be significantly higher.

💡 Example:

Two loans of €20,000 may have very similar monthly repayments. However, if one is repaid over five years and the other over seven years, the total amount paid by the end of the term could differ significantly.

The interest rate is the price we pay for borrowing money. Expressed as a percentage, it is one of the key factors that determines the overall cost of a loan.

In general, the higher the interest rate, the more interest we are likely to pay over the life of the loan.

However, the interest rate alone does not tell the whole story. Two loans with the same interest rate can have different overall costs, depending on factors such as the repayment term, fees, and other charges. That is why it is important to consider all the costs associated with a loan, not just the interest rate.

One of the most important features of a loan is the type of interest rate it offers.

• Fixed Interest Rate:

With a fixed interest rate, the rate remains the same for the period specified in the loan agreement.

This means our monthly repayments stay predictable, making it easier to budget, plan ahead and manage our finances with greater certainty.

• Variable Interest Rate:

With a variable interest rate, the rate can increase or decrease during the life of the loan, depending on market conditions and the terms of the agreement.

As a result, our monthly repayments may also rise or fall over time.

💡 Example:

A family in Larnaca chooses a mortgage with a variable interest rate. If interest rates increase in the coming years, their monthly mortgage repayment may also increase. For this reason, it is important to consider whether our budget could comfortably absorb higher repayments before choosing a variable-rate loan.

⚠️There is no single option that is right for everyone. The most suitable choice depends on our financial circumstances, our comfort with risk, and our ability to manage potential changes in our loan repayments.

When comparing loans, looking at the interest rate alone is not enough.

The Annual Percentage Rate of Charge (APRC) gives a broader view of the cost of borrowing because it takes into account not only the interest rate but also many of the costs associated with the loan, as defined by applicable legislation.

This makes the APRC a useful tool for comparing similar loan products, as it provides a more complete picture of what a loan may cost over time.

Thus, when comparing loan offers, it is usually helpful to consider both the interest rate and the APRC rather than relying on either measure alone.

💡If two loans have the same interest rate but different APRCs, this may indicate that their overall costs are different.

Before signing a loan agreement, it is important to look beyond the interest rate and APRC and review the full terms and conditions of the loan.

Depending on the type of loan, additional fees and charges may apply and can affect the overall cost of borrowing.

It is therefore worth checking:

• Any application, processing or administration fees
• Charges related to setting up or managing the loan
• Any fees that may apply if we repay the loan early
• The total amount we will repay over the life of the loan

💡 Taking the time to read the loan agreement and related documentation carefully can help us avoid unexpected costs and ensure we fully understand our commitments before signing.

Imagine we are comparing two loans for the same amount.

The first loan offers a lower monthly repayment because the repayments are spread over a longer period. The second loan has a slightly higher monthly repayment but is repaid over a shorter term.

At first glance, the first loan may seem like the better option. However, when we look at the total amount we will repay over the life of the loan, we may find that it actually costs more overall.

💡 The key takeaway is simple: we do not compare loans based solely on the monthly repayment. Always consider the total cost of borrowing, together with the key terms and conditions of the loan.

Before taking out a loan, and after understanding how the interest rate, APR and other charges influence the overall cost of borrowing, it is important to compare the options available in the market and to rely on information from trustworthy sources.

To promote greater transparency, the Central Bank of Cyprus (CBC) publishes detailed monthly data on deposit rates and selected categories of lending rates offered by credit institutions in Cyprus.

For those of us considering a mortgage, the information on housing loan interest rates can be particularly useful. It provides insights into market conditions and can help us compare the terms available across different credit institutions.

🔗We can access the latest interest rate data at the following link: Central Bank of Cyprus – Interest Rate Data for Deposits and Loans by Credit Institution

💡 Before taking out a mortgage, it is worthwhile to familiarise ourselves with prevailing market interest rates.Comparing offers from different credit institutions can help us secure more favourable borrowing terms and make more informed financial decisions.

It is also useful to know that the Central Bank of Cyprus calculates and publishes a Reference Interest Rate on a quarterly basis in accordance with the relevant legislation.

This rate is used in determining the maximum permitted interest rate that may be charged on a loan. Under the applicable legal provisions, charging interest above the prescribed limit may constitute a criminal offence.

🔗 We can view the current Reference Interest Rate here: Central Bank of Cyprus - reference interest rates

⚠️ The fact that a loan complies with the legal limits on interest rates does not necessarily mean that it is the most suitable option for our circumstances. We should always consider the total cost of borrowing, the APR, the terms and conditions of the agreement, and our ability to meet the repayments throughout the life of the loan.

Before taking out a loan, it is worth taking a few moments to consider the following questions:

✔ Do I understand how the monthly repayment is calculated?

✔ Do I know whether the interest rate is fixed or variable?

✔ Have I checked the APRC and the total cost of the loan?

✔ Do I understand all the fees, charges and key terms of the agreement?

✔ Have I compared more than one loan offer?

✔ Would I still be able to meet my repayments if my financial circumstances changed?

These questions cannot replace professional advice where it is needed, but they can help us make borrowing decisions with greater confidence and a clearer understanding of the commitments involved.

✔️Do not compare loans based solely on the monthly repayment.

✔️ The interest rate is important, but it is only one part of the overall cost of borrowing.

✔️ The APRC can help us make more meaningful comparisons between similar loan products.

✔️The repayment term can have a significant impact on the total amount we repay.

✔️ Always read and understand the terms and conditions before taking on any financial commitment.

👉 What’s next…

Understanding the true cost of borrowing is an important step towards making informed financial decisions. However, choosing the right loan is only part of the process. Managing it effectively throughout the repayment period is equally important.

The way we organise our financial commitments and respond to unexpected challenges can have a significant impact on our long-term financial wellbeing.

In the next article, we will explore the key principles of effective debt management and explain how borrowing can be used as a financial tool to support our goals without creating unnecessary financial pressure.

🔗 Useful Links:

• What Is Debt and How Does It Work?
• Which Type of Borrowing Is Right for our Needs?
• Managing Debt Responsibly
• How to Repay Debt More Effectively