What goes into RRSO
RRSO captures three things: nominal interest (annual rate), commission (a one-off fee taken upfront or rolled into the instalment) and extra costs (insurance, processing fee, withdrawal commission). What's left out: late-payment cost, monitoring fee, early-repayment fee. Short version, RRSO shows the cost of paying on time, not the worst-case scenario.
The formula every calculator uses
The RRSO formula is iterative: it discounts the cash-flow stream until the sum of discounted instalments equals the disbursed amount. Nobody computes it by hand. Every calculator (totalmoney, bankier, direct.money, and ours in the next release) uses the same formula from EU directive 2008/48/EC. The interface differs, the result doesn't.
A quick mental estimate
Simple trick: take total cost (commission plus interest), divide by the principal, divide by years, multiply by 100. Accuracy within 2-3 percentage points. Example: 10 000 PLN over 24 months, total cost 2 800 PLN. 2800/10000/2*100 = 14%. Real RRSO sits around 16-18% because of compounding.
Comparison by RRSO — the only fair yardstick
Polish consumer credit law requires every loan ad to show RRSO. That isn't accidental. Two banks can advertise the same product: one at 6.5% nominal, another at 7.8%. The first may carry RRSO 19.2% (heavy commission hidden), the second 9.4%. RRSO levels the field.
My take: ignore everything except RRSO and total cost
Nominal rate, „attractive commission”, „first year interest-free”, „free insurance package” — marketing decoration. Two numbers count: RRSO and the total amount due (sum of all payments). The rest is wrapping.