Different loan types - different compositions
The term gross loan amount is an important calculation figure that must be stated and explained in loan or credit agreements. It can be equated with the terms nominal loan amount, loan nominal amount, or nominal amount. Some explanations even assume that the gross loan amount can also be referred to as the total loan amount.
Fundamentally, the gross loan amount can be defined either as the amount that must be repaid in total for a loan or credit, or as the amount that serves as the basis for calculating interest and principal repayment. In both cases, this sum can be composed differently.
In contrast to the gross loan amount, the net loan amount is the amount of a loan that is actually paid out to the borrower. Other costs, such as the brokerage commission, are therefore not included in the net loan amount.
Different loan types - different compositions
Basically, a loan consists of the principal sum and various costs and fees. Because there are different calculation methods, examples are provided to support the explanation:
The simplest example is a consumer loan, because typically only processing fees are charged. These fees are currently controversial, as some rulings at the higher regional court (OLG) level place the responsibility more on the lenders than on consumers, since the fees are used for risk assessment in the interest of the lenders. Nevertheless, at the moment they are still charged by a number of loan providers.
The amount usually ranges between one and three percent of the loan amount and is charged as a one‑time fee. For loans in the real estate and commercial sectors, costs for appraisals of the financed property, expert reports, and notary fees may also apply, which are typically calculated once as a flat percentage.
Example calculation
These items must be taken into account in the gross loan amount in any case, but this can be done in different ways: One variant is to add the cost items on top of the actual disbursed amount. That means if the sum is 10,000 Euro, the fees of 3% are added and financed, so the loan amount increases — the gross loan amount is 10,300 Euro, and interest and principal are calculated on that amount.
Another possibility is to reduce the disbursed amount by the cost items: the loan amount of 10,000 Euro is reduced by the 300 Euro processing fee, so 9,700 Euro are disbursed, but 10,000 Euro must be repaid. Here the gross loan amount would be 10,000 Euro and thus the basis for calculating interest and principal.
In any case, the gross loan amount and the disbursed amount differ. When choosing the loan sum, attention must be paid to the method of offsetting in order to achieve the actual financing goal.
Disagio
Another cost item can be a Disagio (also called Damnum or Abgeld), which is usually agreed between borrower and lender for longer‑term financings, such as a mortgage, in order to obtain lower interest rates over a longer period.
The costs for the Disagio are deducted as a percentage of the loan amount or set as the payout rate, so less is disbursed.
In our example, the 10,000 Euro would be granted with a five percent Disagio or paid out at 95 percent = 9,500 Euro (minus any processing fees in variant b)). However, interest and principal refer either to 10,300 Euro or to 10,000 Euro, since those are the repayment sums.
Residual debt insurance
Residual debt insurance also belongs in this area, but it is handled differently. One variant is the optional purchase of residual debt insurance, i.e. the insurance can be taken out optionally and voluntarily in the event of the borrower's death, involuntary unemployment, or long‑term incapacity for work. The premium is then charged once and added to the loan sum. Thus this item is included as a cost factor in the gross loan amount.
If, however, this insurance is made mandatory for consumer loans, the costs must be included in the effective annual interest rate and may not be charged separately. Then it depends on the interpretation of the term gross loan amount whether this item is included as part of the interest component in the calculation or not.
Different calculation methods
In the literature there are various ways to calculate the gross loan amount.
- One simple formula applies particularly to consumer loans: disbursed amount + costs (processing fee, etc.) = gross loan amount. This amount then serves as the basis for interest and principal.
Example a): 10,000 Euro + 300 Euro = 10,300 Euro (disbursed amount + 3% processing fee = gross loan amount). An assumed interest rate of 10% must be applied to 10,300 Euro and results in an annual interest charge of 1,030 Euro.
Example b): 9,700 Euro + 300 Euro = 10,000 Euro (disbursed amount + 3% processing fee = gross loan amount). The costs are therefore deducted so that the disbursed amount is correspondingly reduced; the gross loan amount in our example is 10,000 Euro and the annual interest charge would therefore be 1,000 Euro. - Another variant calculates the gross loan amount or total loan amount from the disbursed amount, fees, and interest.
Example a): 10,000 Euro + 300 Euro + 1,030 Euro × term = gross loan amount. With a term of five years, this would result in 15,450 Euro, which then only needs to be divided by the number of months (60) to obtain the monthly installment = 257.50 Euro.
Example b): 9,700 Euro + 300 Euro + 1,000 Euro × term = gross loan amount. With a five‑year term, this yields a gross loan amount of 15,000 Euro or 250 Euro per month for interest and principal. Since the disbursed amounts are different, the two variants cannot be directly compared.
Conclusion
The term gross loan amount is not legally defined and includes (to varying degrees — depending on the definition) the costs of a loan and the disbursed amount.
In variant 1) it is calculated from the disbursed amount and costs and thus forms the basis for interest and principal. If processing fees are deducted from the disbursed amount and there is a lower payout, the original loan sum is the gross loan amount and thus the basis for interest and principal. As a comparison criterion, the effective annual interest rate can be used, into which all other bank costs must flow.
Variant 2) additionally includes the interest burden for the entire term and can thus be equated with the total loan amount. This figure is therefore well suited for comparing different offers, since the loan costs can be calculated easily. All installments to be paid are added up and the disbursed amount is subtracted to obtain the actual loan costs.
When comparing different conditions, care should be taken to ensure that the same disbursed amounts are used as a basis.