Before applying for a loan, you need to know what types of consumer loan interest rates you should consider to know if it is convenient and not end up taking out an option that causes you debt and makes you pay much more than expected.
The types of interest rates on a consumer loan that you should consider are: the nominal interest rate, the conventional maximum rate, and the effective rate. The nominal is the return obtained considering only the principal amount. The conventional is the highest percentage at which they can give the credit. And the effective rate is the percentage that would be applied to a certain amount in a certain period.
So, how do you understand how interest rates work? Read on to find out. How do each type of interest rate affect a consumer loan?
Nominal interest rate:
The nominal interest rate is the amount you must pay for not having the money you need. This cost is agreed upon based on a percentage that, considering the term and the capital, will report a benefit over the initial value with simple capitalization. In addition, it does not include administrative expenses or commissions.
Its value is agreed upon by each financial institution independently and is generally linked to the country's economic cycle and reference indicators.
You should also consider the time period. The nominal interest rate can be daily, weekly, quarterly, and so on. It does not have a standard reference period, and since it does not include expenses, it is impossible to adequately compare consumer loans from different entities with this interest rate.
Conventional maximum rate:
This rate applies to consumer loans of less than R$200 and covering transactions over 90 days. It is the maximum percentage that a financial institution can charge as a fee for transactions under the conditions mentioned above.
You can always consult the conventional maximum on the website of the Superintendence of Banks and Financial Institutions (SBIF), which is the entity that controls this participation.
Effective rate:
Depending on the financial institution, the effective rate may appear among the types of interest rates on a consumer loan, on a monthly or annual basis.
The effective rate provides more accurate data, but it is also not exact. Although it includes more expenses than the nominal rate in its calculation, it does not include all of them. For example, notary fees, taxes, fund transfer expenses, insurance or guarantee expenses, among others.
It is possible that with all this information it will be easier to know which credit is convenient for you or not, but it would be better if you compare the CAE (equivalent annual charge), which is the only number that includes all the charges for a year for a consumer credit.
If you have already analyzed the types of interest rates on a consumer loan, go to comparators and find the best option for you.