What is the difference between loan interests and agios?
At the beginning of this year, I received a document from the bank saying: “This document is a proof of the loan-related financial expenses you supported last year: 5€. These agios are tax-deductible. “
The term agio in French usually refers to the interest you have to pay to the bank that lent you money while your account was in the red. As our account was never in the red, I figured agio probably had a wider meaning and I found out it could simply mean “commission” or “fee”. As I knew that loan interests were tax-deductible, I ended up thinking that those agios were the amount of interests we had paid back so far. It seemed very little but I was very busy with other things so I didn’t pay much attention to it.
When we found out that loan payments were not tax-deductible, only loan interests, I thought “what’s the point? It’s only 5€…”. But then, I read François’ comment and started to wonder again: if somebody was mentioning that loan interests were worth deducting, it had to be for more than 5€. And then I realized how you always pay back the interests before the actual capital so I checked our reimbursement plan (it is the big file where you see, for every monthly loan payment, how much of it paid back the capital and how much paid interests) only to find out that during this first year approximately 40% of our payments had been used to pay interests and only the remaining 60% actually paid back the capital we were lent. We paid around 1500€ of interests…so much for what I thought was 5€!
And then something else hit me! I remembered that, right after we got the money from the bank, they charged us a small amount of money that they labelled “commission interests” (or maybe “interest commission”, it was not very clear how it should be understood). I had no idea what it was but I just let it go because it was such a small amount of money. Well guess what…here are my 5€. These are the agios.
So now I have two questions:
- What are agios / what does “commission interests” or “interest commission” mean? Does it mean that on top of paying interests to the bank for the money you are lent you have to pay a commission on the interests? (It wouldn’t make much sense, would it?)
- And if we reconsidered submitting an actual profit-tax return, would the accountant calculate the amount of interests we paid based on the reimbursement plan our bank provided us with or is there some other complicated way of calculating it?
Any idea or piece of information is very welcome! Feel free to leave your comments.
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3 people have left comments
Aurelien said on March 9, 2009, 3:08 am:
Hi Sally, thank you for keeping us updated about your investments properties, it is really interesting to wannabe investors like me.
As for the difference between agios and loan interests why don’t you just call your bank to ask them about this 5 euro fee ?
Regarding the amount of interests you have paid, I reckon your accountant will refer to your reimbursement plan as it is certainly equal to the amount you will have paid.
Cheers
Francois said on March 10, 2009, 2:19 am:
Hi Sally,
- The “Agios” are indeed the interests you have to pay when you are in the red.
- The “commission interests” is something I’ve never had to pay. Maybe it is because you paid the commission too late ? Your bank should be able to explain.
- My bank is sending me every year a statement saying exactly how much interest I paid the previous year, and what other amounts are deductible (like the loan insurance): this is this number I’m using for the tax declaration.
Cheers,
François.
Sally said on March 11, 2009, 7:57 am:
Hello !
Thank you for your comments.
I have just sent an email to my bank and will keep you posted with their answer. I don’t remember being late in paying anything and we have never been in the red either so they’d better come up with a good explanation!!!
I was expecting a yearly statement for tax purposes too but they haven’t sent anything about the amount of interests we paid. All we have is the first statement with the 5€ deductible commission. I’d expect a big bank like theirs to send the adequate documentation on time so I don’t know what’s going on but I will definitely look into it.
Have a nice day!
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