What influences the interest rate on loans?

Before applying for a loan, it is essential to stay informed about the economic context of the country, as well as the credit policies of the chosen institution. This is because there are factors that directly impact the interest rate, which cannot be ignored, such as the Selic and the CET.

What is the Selic rate?

Before understanding how the Selic Rate influences loans, it is essential to know what it is and how it works. The Selic is the economy’s basic interest rate and directly impacts several sectors.

Called the Special Liquidation and Custody System, it consists of a program in which financial institutions buy and sell national treasury securities. Thus, the Central Bank controls, through this system, the issuance, sale and purchase of public securities.

Every 45 days, members of the COPOM (Monetary Policy Committee) meet to define this rate. Through some indicators, they analyze whether the rate value will be the same or whether it will be necessary to increase or reduce it.

Because it is a program that impacts all sectors of the economy, the analysis of the Selic rate is careful, carried out by directors of the Institution. 

The Selic, in turn, is the rate that aims to verify loan operations carried out by institutions that use their federal public securities for loan purposes. In addition to loan rates, it influences all interest rates in the country, such as financing and investments.

Every day several institutions with a positive balance lend money to people with a negative balance in exchange for government bonds. This process is called cash closing, from this system it is possible to define the Selic.

However, there are two types of Selic rate implemented in Brazil: 

Selic Over rate : the name over refers to the term “overnight”, which means investments with terms of one day. This Selic rate is related to the interest rates on loans with a one-day term, as they are available to financial institutions that have purchased government bonds from the Central Bank. 

Selic Target Rate : this index is related to inflation, loan interest rate, cost of living or investments. 

How does Selic influence loans?

Selic is one of the main indicators that define loan interest rates. When it is high, banks pass the increase on to consumers, consequently raising interest rates. Now, when it is low, interest rates are lower as well. 

The Selic can be monitored directly on the Central Bank website . In it, in addition to the variation, you will also be able to follow the daily target for the Selic rate.

Target for the Selic Rate

% yy, daily data

Source: Central Bank

What is CET?

The CET is the Total Effective Cost of a credit operation, that is, it is the total amount you pay on the loan. Regulated by the Central Bank in the Resolution of the National Monetary Council (CMN) , the rule obliges financial institutions to keep the amounts and details of explicit credit operations. 

Thus, the applicant will know exactly the total amount he will pay on the loan, including interest, fees, charges, taxes and insurance.

The resolution is important for transactions, because some financial institutions omit information by presenting lower interest rates, without detailing other possible amounts that will be charged during the installments. 

Therefore, it is necessary to be aware of your rights and always consult the Total Effective Cost when taking out the loan. 

How does CET influence loans?

The CET has influence on loans by presenting the total value of the transaction, not limited to interest. Ignorance of credit application processes contributes to the importance of the Total Effective Cost, since most people pay attention only to the transaction interest.

Therefore, banks disclose loans considering only the interest rate, omitting other information, such as: charges, taxes and insurance. When analyzing the CET of the transaction, it is possible to verify a much higher value than that disclosed by the institution. 

What is the average interest rate for the main loan types?

There are several types of loan modalities, the main modalities are:

• payroll loan;
• personal credit;
• overdraft;
• credit card.

We will detail more about each type of modality below: 

Payroll loan

The payroll loan is a line of credit that authorizes the deduction of installments directly from the INSS benefit. This type of loan is more common among retirees, pensioners and civil servants. 

By offering more payment security, payroll interest rates are usually lower compared to other institutions. The average interest rate for this modality is 2.39%.

Personal credit

Personal credit consists of a type of loan granted by institutions for personal projects. The main feature of this modality is that the applicant does not need to prove the destination of the money application.

Therefore, he is free to apply the money as he wishes, whether in investments, debt settlement, property purchase, among other projects. However, to acquire this loan, you must have a pre-approved line of credit beforehand. The average interest rate for this modality is 5.71%. 

Overdraft 

The overdraft consists of credit made available by the financial institution automatically to the customer’s current account. Thus, if by chance the customer spends more than he has in his account, this type of credit starts to be used and the account becomes negative.

When the client receives money again in the checking account, this overdraft is paid plus interest. Most of the time, this credit is only granted with a pre-approved credit limit. 

The overdraft interest rate is usually one of the highest on the market, averaging 12.30%. 

Credit card

Credit card is one of the most used types of loans in the country. According to a survey carried out by the Brazilian Association of Credit Card and Service Companies – Abecs, credit card purchases moved BRL 1.6 trillion in the first half of 2022, which corresponds to about 42.2% compared to to last year. 

This means of payment is so popular that few people usually see it as a loan. However, it consists of a credit established by the financial institution in which you can make installment purchases and pay them on a predefined due date. 

If payment is not made on that date, an interest rate proportional to the delay time will be charged. Like the overdraft, the credit card has high fees, given that it needs to be used consciously. The average rate for this type of loan is 12.68%, slightly higher than the overdraft rate. 

You can follow changes in interest rates between institutions directly on the Central Bank website .