The interest rates for a consumer loan can have a big difference depending on the entity chosen. That is why it will be relevant for a person to quote a loan in two to three financial entities, to make an adequate comparison.
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For example, For a personal loan of S/ 5,000, payable in twelve months, the interest rate can vary between 10.1% and 102.2%, depending on the financial institution.reports the Superintendence of Banking, Insurance and AFP (SBS).
Following the same example, the financial entity with the lowest interest has a minimum Annual Effective Cost Rate (AER) of 10.1%, which generates the payment of a monthly fee of S/ 438. While the financial entity with the highest interest charges an AER of 102.2%, which implies the payment of a monthly fee of S/ 601.
In the first case, upon completing the twelve payment installments the person will pay a total of S/ 5,256. While in the second case the total payment will rise to S/ 7,212. That is to say, In a loan of S/ 5,000, with the most expensive interest rate you will pay S/ 1,956 more compared to the loan with the cheapest rate.
In total, there are thirty financial entities that provide personal loans, according to the SBS (see table).
What is the TCEA in a loan?
The comparison indicator shown by the SBS is the Annual Effective Cost Rate (TCEA). This is because the TCEA shows the total cost to be paid by the user, indicated Julio Cabrera, finance teacher at ISIL.
“The TCEA, in addition to the capital and interest, also includes whether there are insurance payments, commission or any maintenance. The TCEA includes all costs within the fee, so it measures how much you will pay,” he stressed.
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Interest rate will vary depending on the person’s credit profile
The SBS report also shows a range of minimum TCEA and maximum TCEA for each financial institution.
This is because the TCEA will not be the same for all clients, but will vary according to the applicant’s credit profile, which is determined according to variables such as their income level and credit history.
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Interest on consumer loans is lower than on credit cards
It should be remembered that the interest rates on consumer loans (personal loans) are usually lower than the interest rates on credit cards.
Thus, another SBS report shows that the interest rates of classic credit cards, payable in installments, vary between 45% and 208% annually.
