The conversion of a loan actually involves changing the loan currency. A loan granted, for example, in Swiss francs is converted on the basis of an annex to the loan agreement by the bank into PLN, thanks to which the customer repays the installment in the native currency. When is it worth doing a currency conversion operation and what costs does it entail?
The essence of currency conversion – what does it mean for the borrower?
Even at the beginning of the new millennium and for the next few years, foreign currency loans were very popular in Poland, due to low interest rates – among others Neofunding. Credit advisers argued that loans in eg Swiss francs is a stable investment, allowing to reduce loan costs to a minimum. As demonstrated by the practice, even a stable Helvetic currency could double its value, to the despair of the so-called franchise, or mortgage borrowers who had liabilities denominated in Swiss francs.
Holders of such loans may consider the possibility of converting their liability into PLN, similarly to borrowers with a loan in EUR or in US dollars or in any other currency. The change in the currency means that the client no longer has to worry about the high currency spread, ie the difference between the sale and purchase of the currency and pay installments conveniently in zlotys, without having to convert them into another currency or bring the amount in foreign currency to the bank as the repayment of another capital installment. interest.
The currency exchange rate is the most important
When making a decision to convert a loan, the current currency of the currency in which such an obligation is denominated is the most important. If it is high, conversion will result in additional debt on the borrower’s side. The increase in currency quotations generates an automatic increase in debt converted into zlotys, despite the fact that the amount expressed in the currency does not change at all.
So if the borrower took out 100,000 in July 2005 Swiss Francs mortgage loans, it was translated into PLN, its debt amounted to PLN 264,000 (CHF NBP rate of 26 July 2005 = PLN 2.64). Assuming that he repaid half of the debt within 12 years – 50,000 francs, another 50,000 have to be repaid Calculated as a PLN, his debt as at July 26, 2017 is PLN 192,000. This is a huge amount, disproportionate to the already paid part of the loan obligation.
It is most beneficial for the borrower to convert the loan when its currency is valued lower than when the liability is incurred. You can then gain all over the loan, because the capital will be converted at a favorable rate for the client.
The costs of bank commissions
It should also be borne in mind that the bank may charge a fee for converting the loan, in the form of a percentage commission on the amount of the obligation to be repaid. Fortunately, most banks in Poland abandon its collection, especially in the case of converting loans from Swiss francs into zlotys.