To know which is the cheapest payroll loan and close a good deal, it is necessary to be aware of the Total Effective Cost (CET).
And for that, comparing interest rates is not enough. After all, there are several other factors that can make your loan more expensive and not always so clear.
Take advantage to know what these factors are and how to have greater financial control.
But what is Total Effective Cost?
Total Cost Effective (CET) is the rate that includes all charges and expenses arising from loans and leases contracted by individuals or companies .
When a person contracts a payroll loan, for example, in addition to the interest rate, the bank will also pay the other taxes, insurance and operating costs of this financial transaction.
The total value of the contract, divided by the payment term will be the value of the monthly installment.
Thus, the higher the Total Effective Cost, the greater the amount to be paid to the bank. The lower the total effective cost, the better.
The CET is nothing more than how much you will actually pay monthly.
This rate is given in percentage value, represented by the month or year and its definition is determined by each bank.
What is it useful for and what is its importance?
The CET serves to clarify to the borrower, effectively, how much it will cost the operation. That is, the total paid as it is relative to the amount borrowed and how much are taxes, taxes and other fees.
This is because the financial market still suffers a lot from the lack of transparency, especially in operations related to the supply of credit, where the consumer is not sure what he is hiring or what he will pay.
In the case of the payroll loan, where the payment is deducted directly from the INSS salary or benefit, having this information is fundamental.
After all, no one wants to get scared at the end of the month, right?
Knowing this value also makes it possible to analyze and compare the proposals between banks.
In this way, consumers can make better decisions and, in fact, meet their needs and fit in your pocket.
This indicator is effective when the comparison is made for operations with the same average maturity.
Otherwise, it is recommended to evaluate the bank spread (the difference between the interest the bank charges to lend and the rate it pays itself to raise money).
Find out now, how much a payday loan costs.
How Much Does a Consigned Loan Cost?
When a loan or financing is carried out, the borrower takes on a debt.
Thus, it also undertakes to pay the bank a monthly installment of the amount borrowed, plus interest and other fees, throughout the term of the contract.
Read also : How does the calculation of the Payroll Loan work?
The announced interest rates on the loans are the nominal rates , usually expressed per month. However, when looking at the total cost, the amount paid will be higher than advertised.
This difference is due to the so-called effective rate .
The nominal rate, although widely used in the market, does not represent an effective rate.
Nominal Interest Rate
It is the rate at which the rate reference period differs from the capitalization period.
The nominal rate is always provided in annual terms and the capitalization periods can be semiannual, quarterly, monthly or daily.
Example: 12% per semester with monthly capitalization
Effective Interest Rate
It is one in which the rate reference period is equal to the capitalization period.
Example: 1% per month with monthly capitalization.
It is important to know that nominal rates are proportional rates . For this reason they are lower than the equivalent rates, since they do not consider interest on interest (compound interest rate).
For example, a nominal interest rate of 6% per annum corresponds to an effective rate of 0.5% per month (= 6/12). If the annual effective rate is calculated, the value will be 6.11678% per year.
Understand which rates are included in Total Effective Cost.
What rates are at Total Effective Cost?
In the total value of the payroll loan charged by the banks, they are usually:
- Interest rate;
- Credit analysis fee;
- Tax on Financial Transactions (IOF);
- Credit Opening Rate (TAC);
- Administrative fees in general;
- Registration maintenance fee;
- Other fees (must be broken down and detailed);
The contracts signed with INSS Retirees and Pensioners are exempt from the collection of TAC.
All costs must be included in the contracted value , and it is not allowed by law to charge additional fees or make contractual additions.
How to calculate Total Effective Cost?
The equation for calculating the Total Effective Cost of loan and financing contracts is given by:
- FC 0 – value of credit granted, less expenses and fees paid in advance;
- FC j – amounts collected, including amortizations, interest, insurance premium and registration fee or renewal of registration, as well as any other cost or charge charged;
- j – jth interval between the date of payment of the periodic amounts and the date of the initial disbursement, expressed in calendar days;
- N – term of the contract, expressed in consecutive days;
- d j – date of payment of amounts collected, whether periodical or not (FC j );
- d 0 – date of release of credit by the institution (FC 0 ).
This calculation presented by the Central Bank is based on the year of 365 calendar days. Usually the financial market considers 252 business days.
The calculation seems complicated, but do not worry about it. In the contract, the value is already expressed in percentage (referring to the annual and monthly rate), which will facilitate its understanding.
And the most important, in fact, is knowing what the CET is and not necessarily how to calculate it.
Thus, it is possible to plan in advance all the costs involved in the payroll loan agreement.
Where and how to consult?
Created by the Central Bank in 2007, Resolution CMN 3.517 / 2007 requires every financial institution to report the Total Effective Cost for any financing or loan .
Therefore, all banks must inform the CET, before the execution of a contract and also whenever requested by the client.
The spreadsheet used for the calculation should be provided to the borrower, detailing values and references.
The value of the CET must be included in the contract and also in the advertising reports that are disclosed by the banks.
Even with all this information, you still need to have some minimal care before signing a contract.
Care needed before signing a contract
When you receive a copy of the contract, you must confirm that the final value is the same as the one you want.
Check the rates and amounts mentioned to check if there is no service added without authorization. An abusive and common practice at this time is the married sale of banking products and services.
In case of divergence, according to experts, the best thing to do is not to sign the contract and inform the bank or correspondent .
Report Procon to the absence of mandatory or suspected breach of the law.
Having the value of the Total Effective Cost is important, because although no bank is required to cover an offer, it can be an evaluation item of choice.
Therefore, when researching or requesting a payroll loan simulation , never forget to know the CET, thus avoiding having an impact on your budget.
Knowing how much you will spend, it will be easier to make minimal financial planning and ensure your financial health.