Every quarter, Banco de Portugal publishes the maximum APR that financial institutions can practice in the personal credit, car credit, revolving credit (where credit cards are inserted) and the Maximum TAN in credit overruns. So, if you’re aware of this information, you’ll know exactly what the maximum interest rates can be charged on a loan. In addition, knowing the value of maximum interest on different types of consumer credit, it also allows you to make better financial decisions. After all, a personal credit (without a specific purpose) has a lower maximum interest rate than, for example, a credit card. Taking into account the current rates, if you opt for a personal loan instead of a credit card, in the first quarter of 2023 you can save 2.7% on your APR. However, it is not always easy to understand interest rates and why one type of consumer credit can be more advantageous than another. Therefore, below, find out how you can be aware of the maximum interest rates charged, which rates are in force in the first quarter of 2023 and which are the most advantageous solutions (always depending on the type of case).
What are the maximum rates on consumer credit?
Since January 1, 2010, the cap rate system which applies to all consumer credit agreements set out in Decree-Law no. 133/2009, of 2 June. This regime includes, for example, personal loans, car loans, revolving credit, which includes credit cards, bank current accounts, overdraft facility, and credit overruns. And what does this regime consist of? In practice, it defines the maximum interest rates that financial institutions can apply to consumer credit in each quarter. To be defined, the average APRs charged by credit institutions in the previous quarter are taken into account, plus a quarter. However, no fee can exceed by 50% the average APR of all credit agreements entered into in the previous quarter. Although this regime defines other rules, which you can consult on the Banco de Portugal website, there are important details to retain. On a quarterly basis, the regulator calculates and publishes the maximum rates for each type of consumer credit. But this does not mean that this will be the APR applied to your contract. This regime protects customers from credit institutions setting rates higher than the defined maximum rates. If an entity stipulates a higher APR, it is incurring an illegality. And in these cases, you must report the situation to Banco de Portugal.
What are the maximum interest rates a bank can charge on consumer credit?
You maximum interest charged to the consumer may or may not vary from quarter to quarter. There are quarters in which the maximum interest rate increases, in others it decreases, but it can also remain unchanged. Still, different types of consumer credit agreements may not have the same rates. On the contrary. Depending on the type of contract, model or purpose, a maximum APR applies for the corresponding quarter. In the table below, you can check the maximum APR applied in the 4th quarter of 2022 and the ones that effective in the first quarter of 2023.Type of credit agreementMaximum APR 4th quarter 2022Maximum APR 1st quarter 2023Purpose Education, Health, Renewable Energy and Equipment LeaseOther Personal Credits (without specific purpose, home, consolidated and other purposes)Lease or ALD: newLease or ALD: usedWith reservation of title and others: newWith reservation of title and others: usedCredit Cards, Lines of Credit, Bank Current Accounts and Overdraft Facilitiesnote: One or two days before the start of each quarter, Banco de Portugal publishes the maximum APRs that will be in force in the next quarter of the year, on the Bank Customer Portal. Here, you should consult the page “interest rates on consumer credit”.
Reflect if it’s not time to “get rid” of your credit cards
Credit cards sometimes pay off, because you can, in fact, enjoy some benefits if you manage to settle the outstanding capital at 100% within the term without interest. Some credit cards give access to Attractive discounts on various products and services. Furthermore, they allow you maintain liquidity over a given period, being able to pay off the entire amount owed on the agreed date. However, when you do not use your credit cards in this way, you must the probability of putting your family budget at risk and you may even be losing money due to ignorance.When parcel the debt of your credit cards in several installments, it is subject to very high interest rates. If you look at the table above, you can see that either credit cards, overdraft facilities or current bank accounts have the highest maximum interest rates of all types of consumer credit.Although credit cards are easier to obtain and use, should not be used for loans with a more significant amount. Even if your plafond allows it. After all, it is most likely to “drag out” the full settlement of the outstanding amount over a long period, which increases the risk of debt.Read more: I have credit cards, can I cancel them?
Credit card vs personal credit with no specific purpose
Suppose you need to order a loan of 4,000 euros where the purpose does not give access to a personal loan with the lowest APR. In this case, either pay off this debt in three years (36 installments). If you resort to a credit card with an APR of 14.62%, pays the total interest of 886.34 euros. That is, your credit will cost in full 4,886.34 euros. The monthly installment would be 133.78 euros.But if you resort to a personal credit without specific purpose, in which the APR is 12.27%, the same amount and term, would represent a total amount of interest of 743.96 euros. Therefore, the total amount of your loan would be 4,743.96 euros, with a monthly payment of 129.82 euros.In conclusion, in this situation, loses 142.38 euros by using your credit card instead of using a personal loan. Also read: 7 precautions to take when taking out a personal loan
Do you have multiple credit cards with outstanding debts? consider consolidating
in case the credit card installments are affecting your family budget and you need to reduce this charge, you should consider getting a consolidated loan. Consolidated credit is a personal loan, where the APR cannot exceed 13% in this first quarter of 2023. However, as a rule, manages to get a lower APR at many credit institutions. In practical terms, credit consolidation consists, as the name implies, of joining all your credits into a single loan. That is, it just stays with a single installment to be paidwhich is usually lower than the total amount of all your credit installments.If, for example, you have several outstanding credit cards, you will be able to enjoy a more advantageous interest rate, which you can reduce your monthly installments by up to 60%. However, one of the consolidated credit criteria is that in addition to your mortgage loan, you need to have, at least two more loans contracted. These can refer to credit cards, personal loans without purpose or even a car loan.Read also: How can credit consolidation reduce my charges?
A professional writer by day, a tech-nerd by night, with a love for all things money.