Overdraft Interest Drops to 306.9 Percent per Year but Credit Card Rates Rise
RIO DE JANEIRO, BRAZIL – The interest rate on overdraft dropped 11.8 percentage points in August, compared to July, and reached 306.9 percent a year. In 2019, overdraft interest rates fell 5.7 percentage points.
Despite being lower, the rate on overdraft is the most expensive among the types of credit for families and the Central Bank’s recommendation is that it should only be used in emergency situations.
The head of the Central Bank’s Statistics Department, Fernando Rocha, said the rate on overdraft is “extremely expensive. It is a method to be used in an absolute emergency and we must try to get out quickly, replenishing the balance or taking out other forms of credit.”
Last year, the banks announced a self-regulatory measure for an overdraft. With the new rules, account holders who use more than 15 percent of overdraft limit for 30 consecutive days began to receive the offer of payment in installments, at an interest rate lower than that of the overdraft defined by the financial institution.
Credit Card
The average rate of credit card rotation rose 6.9 percentage points in relation to July, reaching 307.2 percent per year. The average rate is based on data from both performing and non-performing consumers.
According to Rocha, the rate rose due to the increase in interest rates by two financial institutions.
In the case of the performing customer, who pays at least the minimum amount of the credit card bill up to date, the rate reached 289 percent per year in August, an increase of 5.3 percentage points compared to July. The rate charged for customers who did not pay or delayed the minimum payment of the invoice (non-regular rotation) rose 7.7 percentage points to 319.6% per year.
Rotating credit is credit taken out by consumers when they pay less than the full amount of the credit card bill. The rotating credit lasts 30 days. After this period, financial institutions pay the debt in installments.
In April 2018, the National Monetary Council defined that customers who defaulted on their credit card rotation should pay the same interest rate as regular consumers. This rule came into force in June of this year.
Even so, the final rate charged to performing and defaulters will not be the same because the banks may add interest to the delay and fine to the collection.
In the credit card purchases installment payment method, the rate reached 177.3 percent per year in August, with an increase of 2.1 percent.
The interest rate on non-consigned personal credit reached 116.6 percent per year in August, down 2.6 percentage points from July. The consigned credit rate (with payroll deductions) dropped 0.2 percentage points to 22.3 percent per year last month.
According to the Central Bank, the average interest rate for individuals fell 0.1 percentage point in August to 52.1 percent per year. The average rate of companies stood at 18.9 percent per year, down 0.2 percentage points.
Default
Credit default, considered to be overdue for more than 90 days, for individuals and companies rose 0.1 percentage point to 4.9 percent and 2.9 percent, respectively.
These data are from free credit, in which banks have the autonomy to lend the money raised in the market and define interest rates to be charged to clients.
In the case of directed credit (loans with rules defined by the government, basically intended for the housing, rural, infrastructure and micro-credit sectors) interest rates for individuals rose 0.4 percentage points to 8.2 percent per year. The rate charged to companies rose 0.2 percentage points to 8.6 percent per year.
Default by individuals on directed credit remained at 1.8 percent and that of companies rose 0.2 percentage points to 2.2 percent.
Loan balances
In August, the stock of all loans granted by banks stood at R$3.325 trillion, up 1.1 percent against July, 2.1 percent for the year and 5.1 percent for 12 months.
This credit balance corresponded to 47.2 percent of everything the country produces – the Gross Domestic Product (GDP) -, up 0.3 percentage points in relation to July.
Source: Agência Brasil
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