Interest on revolving credit cards reaches 451.5% per year in Brazil
Average interest rates charged by banks rose for households and businesses in August, as per data released Monday (Sep. 29) by the Brazilian Central Bank.
In free credit operations for individuals, the highlight was the 5.3 percentage point (pp) increase in the revolving credit card rate, reaching 451.5 percent per year.
This type of credit has one of the highest rates on the market. Even with the limitation on revolving interest charges – in effect since January of last year – interest rates continue to vary without a significant drop over the months. This is due to the fact that the measure aims to reduce indebtedness, but does not affect the interest rate agreed upon at the time the credit is contracted.
In the 12 months ending in August, revolving credit card interest rates rose 24.6 percentage points for households. Revolving credit lasts 30 days and is taken out by consumers when they pay less than the full amount of their credit card bill. In other words, they take out a loan and begin to pay interest on the amount they were unable to pay off.
After 30 days, financial institutions divide the credit card debt into installments. In this case, interest rates fell 2.7 pp in the month and 1.6 pp in 12 months, reaching 180.7 percent per year.
In total, the average interest rate on free credit granted to households rose by 0.5 pp in August, accumulating a 6.6 pp increase in 12 months and reaching 58.4% per annum.
In the case of corporate transactions, average interest rates on new free credit contracts increased by 0.2 pp in the month and 4.2 pp in 12 months, reaching 25.2 percent. Noteworthy in this scenario is the monthly increase of 9.6 pp in the average interest rate on working capital transactions with terms of up to 365 days, which reached 38 percent per annum.
In free credit, banks have the autonomy to lend money raised in the market and set the interest rates charged to customers – as opposed to directed credit, which has rules defined by the government and is mostly intended for the housing, rural, infrastructure, and microcredit sectors.
In the case of directed credit, the rate for individuals stood at 11.1 percent per annum in August, down 0.2 pp from July and up 1.1 pp in 12 months. For companies, the rate fell 0.1 pp in the month and rose 2.7 pp in 12 months, reaching 13.6 percent per annum.
