Interest is not only on bank statements, credit card or loan interest. They exert much more influence than we imagine in our daily lives. Their first major impact can be felt in the country’s economic movements: the foreign exchange market (value of the real against foreign currencies) and inflation suffer direct interference, for example.
In this way, the interest rate is not just an indicator of the cost of money: it works as an instrument of economic policy in several countries. And the effects of its changes, of course, reach all consumers. That is why it is so important to know how it works.
If you have goals to achieve in 2018, especially those that can be made possible by credit, see what are the prospects for the loan interest rate this year. Good reading!
What is the basic interest rate?
High demand, therefore, equals high inflation. It is common for the loan interest rate to increase in this context. And as they are linked to the cost of capital, the tendency is for the granting of credit to be more restricted, in order to control demand in the consumer market.
Thus, whenever the Monetary Policy Committee (Good Finance) changes the Selic, it is signaling a new practice in the financial market and interfering especially in credit. If it raises all other interest rates on the market, such as loan interest, bank interest, and investments, among others, they go together. When there is a setback, all of them are reduced.
The current scenario could not be more favorable to consumers. At the last Good Finance meeting, basic interest rates on the economy were reduced to 7% per year, the lowest level in the historical series.
To get an idea of how significant this decrease is, just compare with recent figures: from July 2015 to October 2016, the Selic was 14.25%.
What is the Good Finance Bulletin and what are your projections?
The source of this information is always the same: the Good Finance Bulletin, a market report issued by the Good Finance Bank with the forecast for these and other indicators. Prospects in relation to the economy’s figures are collected from the main market analysts.
These projections are reviewed weekly. Thus, there are adjustments according to economic movements. For example, with the Selic regression to the lowest level ever calculated, analysts predict that the trend, taking into account the scenario, is that in 2018 the interest rate will maintain the prospect of falling.
The latest 2017 report considers that the rate, at the end of 2018, should be 6.75% per year. This reduction should be sustained, above all, by the projected fall in inflation and economic growth.
How was the loan interest rate in 2017?
Selic determines the minimum interest rate to be charged by financial institutions. In practice, however, the value passed on to the consumer is much higher. This is because the granting of credit is influenced by several factors.
The cost of capital borrowed to be lent to the customer, which on average is equivalent to the Selic rate, is one of the aspects considered in the calculation. In addition, banks and lending institutions include interest, their profit, the cost of banking operations (employees and infrastructure, among other expenses) and the risk of default.
Thus, in the end, when the loan is negotiated between the two parties, the fee charged is always higher than the basic one. In non-payroll loans, for example, the rate charged by 65 financial institutions varied between 1.35 and 21.63% per month (reaching 16.73 and 956.42% per year, respectively) in December 2017.
For this reason, one attention that the credit borrower must have is to research the fees charged in several institutions to verify which one offers the best conditions.
What is the rate difference between credit terms?
One type that has stood out for offering the lowest interest rates on the market is the secured loan. The borrower presents an asset as collateral, such as a vehicle or property, and the lender is able to reduce the risk of default and thus grant a loan of a higher value at a lower rate.
On the other hand, there are types of credit with excessively high rates, which lead many debtors to face serious financial difficulties. This is the case of an overdraft, whose rate can reach 471% per year, and credit card, especially the revolving one, in which the interest rate can reach 791% per year.
In other words, depending on the need and conditions that the customer has to offer, such as guarantees or a good payer profile, it is possible to find more favorable options – be it in the amount to be obtained or in the cost of the credit.
What is the Long Term Rate (TLP)?
The interest rate on loans operated by the Good Finance Investment Corporation (GFIC) is calculated based on the TLP since January 1, 2018. This parameter should replace the Long Term Interest Rate (TJLP) in the next contracts (financing of all sizes, including for individuals).
For the borrower, initially, the new rule will not bring significant change, since the rate starts from the old base. For January 2018, for example, the TLP will be 6.76%.
In the coming years, however, it will be gradually adjusted until reaching, in 2022, the remuneration percentage of the National Treasury Notes series B (NTN-B), Treasury Bond linked to inflation. In other words, interest on the GFIC loan will reach levels close to those of the private sector.
According to Good Finance, the measure should favor the reduction of the basic interest rate. The GFIC’s practice until now was to operate with lower percentages thanks to subsidies from the National Treasury. This required Good Finance to raise the Selic to adjust the accounts. With the change, this correction will no longer be necessary and will allow a reduction in interest rates for the economy as a whole.
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