Credit financial transactions receive additions that often make the consumer think that they are undue charges or even that their installments have increased because of some mistake of the financial institution. However, when making a complaint, you are surprised …
These charges, in fact, are part of the CET, the total effective cost of a loan or financing. Knowing it in detail prepares the consumer to know, before hiring, the actual amounts owed and whether he will be able to honor them until he can pay off all the debt.
What is Total Effective Cost (CET)?
When you take out a loan or do some financing, you often make the classic mistake of considering only the interest on the installments, but there are other costs that must be added to the installments.
The total charges levied on these financial transactions are called CET (or total cost of ownership). The CET includes the most secure interest rates, transaction fees, rates of the company granting the credit and taxes. Some companies charge additional fees, others do not. Rimartin Liwit, for example, does not charge!
The CET is therefore the sum of all these charges and may result in a significant increase in the value of the contracted debt. Remember that each party involved (consumer, company, investors and government) should have a “compensatory benefit” in credit negotiations …
How to calculate Total Effective Cost – CET?
In the credit agreement, it is mandatory to provide the information of the charges collected, of the Total Effective Cost – CET and the calculation memory made to arrive at the result. This is even a Central Bank norm that came into force in 2008. See the official formula of the National Monetary Council to reach the CET:
Where to fill out the following data:
- N – is the term of the contract, counted in consecutive days;
- J – the interval between the initial disbursement and the date of payment of the periodic amounts;
- FCj – all costs charged (interest, fees, insurance, etc.);
- Dj – date of payment of amounts;
- D0 – date of release of the credit by the financial creditor;
- FC0 – value of credit, less expenses.
If we consider a real example, for financing under the following conditions:
- Amount requested: R $ 1,000.00;
- IOF: R $ 5.00 (included in the financing);
- Insurance premium: R $ 5.00 (included in the financing);
- Rate: R $ 50,00 (not included in the financing);
- Amount financed: R $ 1,010.00 (R $ 1,000.00 + R $ 5.00 + R $ 5.00);
- Interest rate: 12% pa (equivalent to 0.95% am);
- Term of operation (N): 151 days;
- Monthly installment (FCj): R $ 207.79;
- Date of release (d0): 2.1.2017;
- Payment dates (dj): 2.2.2017, 2.3.2017, 3.4.2017, 2.5.2017 and 2.6.2017;
- FC0: 1010-50-5-5 = 950
There is a CET = 44.05% (equivalent to 3.09% am). See the full calculation memory in the FAQ provided by the Central Bank.
Why is it important to know the CET?
Each credit granting company has the right to charge its own fees. When the consumer calculates the CET, you can identify what is interest and what is not …
Knowing the rates of each institution, in addition to interest charges, you can then research the best credit line not only by comparing interest rates but by the total value of the charges involved. With these numbers in place, the consumer is able to more transparently compare which institutes have the best rates.
By practicing a more judicious assessment of the CET for loans and financing, the consumer has greater transparency of information and, consequently, much more security before compromising his pocket!
In addition, from the perspective of the market, the more people know about these charges that go beyond interest, the greater the adhesion of financial institutions to a healthy competitive practice, thus offering customized values to the needs and financial situation