Cost of credit in Financial management

Commercial banks in Kenya have adopted the Total Cost of Credit (TCC) pricing mechanism, which enables consumers to compare different bank loan costs based on standardized parameters and a common computation model.

This site provides you with information on the TCC and features a simple Cost of Credit calculator, which loan applicants can use to estimate the total cost of a bank loan. Banks are required the Central Bank of Kenya to provide you with a Total Cost of Credit breakdown as well as a loan repayment schedule

There are various costs associated with a loan. These costs are in addition to the interest rate component, and range from bank fees and charges to third party costs, such as legal fees, insurance and government levies.

Because loan applicants will tend to focus only on the interest rate when making a loan decision, banks have proactively adopted the Annual Percentage Rate or APR model which converts all direct costs associated with the loan (also known as the Total Cost of Credit) into one number.

 

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