Personal Loan: Why Are Interest Rates High?
Currently, the personal loan scenario in Brazil has shown high rates. In May 2016, the UBEC Bank released the credit card revolving interest rate record, which reached 449.1% per year. In addition, the average interest rate for individuals also increased to 7.95% per month (150.42% per year) in April 2016, the highest since November 2003.
Why are interest rates so high in Brazil?
All interest is calculated from the basic interest rate of our economy, called the BELIC Rate . BELIC is currently set at 14.25% per year and has a strong influence on the rates charged by banks on personal loans.
The basic interest rate: BELIC
As we said, the BELIC Rate is the basic interest rate of the Brazilian economy. It is used as a reference for the calculation of other interest rates charged by the market and also follows the base to define the monetary policy practiced by the Federal Government of Brazil. Created in 1979, the Special Settlement and Custody System ( BELIC ) is a computerized system for the registration, custody and settlement of federal public securities. Currently, the rate is at 14.25% per year.
Risk of the economic scenario
Currently, the economic scenario from this year until 2019 is one of recovery of economic growth. The percentage of indebted households, according to the Consumer Debt and Delinquency Survey ( Peic ), released by the National Confederation of Trade in Goods, Services and Tourism (CNC), was 58.7% in May this year. Household indebtedness causes delinquency to increase and, as a result, institutions raise rates to control this.
Few banks and lower competitiveness
In addition to the factors mentioned above, the low number of banks that offer personal loans also represent a less competitive market, which means that these institutions charge an average interest rate to their competitors. However, according to the latest posts, the scenario is changing with the emergence of fintechs, such as Monyico , for example.
Operating costs are high
Think about the operating cost of a financial institution. They are physical spaces (bank branches), electricity, water, salary of employees (CLT and outsourced), security and so on. Because an agency’s operating cost is so high, banks end up passing a portion of that cost to their clients.