The types of interest rates on a consumer loan that you have to consider are: the nominal interest rate, the conventional maximum rate and the effective rate. The nominal is the return obtained considering only the main capital. Conventional is the highest percentage you can get credit from. And the effective rate is the percentage that would be applied to an amount of money in a certain period.
How does each one of the types of interest rates influence a consumer credit?
Nominal interest rate
The nominal interest rate is the value you have to pay for not having the money you need. This cost is agreed based on a percentage that, considering the term and the capital, will report a benefit on the initial amount with simple capitalization. In addition, it does not include administrative expenses or commissions.
Its value is agreed by each financial institution independently, and is usually linked to the country’s economic cycle and reference indicators. You should also consider the time period. The nominal interest rate can be daily, weekly, quarterly, etc. It does not have a standard reference period, and since it does not include expenses, it is impossible to adequately compare consumer loans from different entities with this interest rate.
Conventional maximum rate
This rate applies to consumer loans that are less than 200 UF and that cover operations over 90 days. It is the maximum percentage that a financial entity can charge as a rate for operations under the aforementioned conditions.
You can always consult the conventional maxim on the website of the Superintendency of Banks and Financial Institutions, which is who controls this interest.
Depending on the financial institution, the effective rate may appear within the interest rate types in a consumer loan, on a monthly or annual basis. The effective rate provides a more accurate data but it is not exact either, although in its calculation it includes more expenses than the nominal one, it does not include all. For example, notaries, taxes, expenses for transfer of funds, expenses for insurance or guarantees, among others.
We agree that with all this information it is easier to know which credit is suitable for you or not, but it would be best if you compare the CAE or equivalent annual charge, which is the only number that includes all charges to one year for a credit of consumption. If you have already analyzed the types of interest rates on a consumer loan, enter our comparator and find the best option for you.