"Free Credit" in Brazil...what it costs it's citizens!

[Guest tomcal]

When you walk through the malls in Brazil, you will go by the electronics and appliance stores and they all have big signs at the entrances with the "monthly" payments shown, never that actual price of the item! These items, big screen TV's, computers, etc are all sold on credit/monthly financing.unbelievable interest rates. Here is a article from a Brazilian financial publication today. I love how they refer to it as "Free Credit"

Brasília - The average interest rate on free credit rose from 43.4% annually in June to 44.2% annually in July, according to data from the Central Bank showed on Wednesday, 26 With this increase, the rate back being the largest of the series started in March 2011.

Since the beginning of the year, every month the interest rate has been beaten and record the previous month.

In the year to last month, the rate rose 6.9 percentage points, since in December 2014 was 37.3% per year. In 12 months through July, the increase is 7.2 percentage points.



For individuals, the rate of interest on free credit increased from 58.4% in June to 59.5% in July, also the highest in the time series. For corporations, there was an increase from 27.5% to 27.9% from June to July.

Overdraft

Among the main free credit lines to individuals, the focus is on the overdraft, whose rate rose from 241.3% a year in June to 246.9% a year last month.

Throughout 2015, the fees charged by one of the most expensive lines that consumers can access - second only to the revolving credit card - rose 45.9 percentage points, since in December 2014 the average interest of this type was in 201% per annum.

As for the personal loan, the total rate rose from 48.7% in June to 49% in July. In the case of payroll, the rate went from 27.3% to 27.8% from June to July and in the other lines of 112.7% to 113.8%.

In the case of purchase of vehicles for individuals, interest increased from 24.7% to 24.5% from one month to another. The average interest rate on total loans, which also includes the targeted operations, rose from 27.6% in June to 28.4% in July.

[ihpguy]

Not actually true. They shops will show the price, for example 49Reais x 12 mes.(months) - sem juros. Effective price being 588Reais. However, you can find the same items on line with free delivery for 5%, 10% 15% less or more of a discount. The problem is that many Brasilians are not sophisticated enough to buy on line and wait for delivery. Or perhaps the delivery will not even be made, they will be charged and then a lawsuit has to be entered into against the vendor or shipper.

Last week I got an offer via email from Ricardo Electric for a washer/dryer for 1699 Reais. The price at Walmart was on line for 2499 Reais and at a Casas Bahia store the same item was being offered at 2999 Reais. Yesterday Walmart emailed me an offer for the same item for 2299Reais, spread over 12 months, no extra interest charges.

As to monthly interest charges, I think I posted something a while back that the effective annual compounded rate is now up to around 400%. Yep. FOUR HUNDRED PERCENT, Not 40%.

What I have found is that the prices in the stores are higher than the same stores, such as WalMart will sell on line. Depending on the price of the item purchased they will parcel the purchase out over 6 to 12 months. As long as the payments are made, there are no extra interest charges. However, if not made on time, then the penalties can be enormous. What always surpises me is that at a basic store like Lojas Americanas or Casa E Video, the cashier will ask if you would like to parcel out a smaller purchased item like a set of a half-dozen glasses for 50Reais over three monthly payments with no interest charges. Of course, they are hoping that you miss a payment.

Due to the recession, the different auto manufacturers have been offering lower interest charges. Ditto the government with inclusive taxes on purchase.