In some of our articles at Financial Group we mention Total Effective Cost (CET) as a result of credit operations, but after all, do you know what CET is and how it is calculated? We’ll explain.
After all, what is CET?
The Total Effective Cost or simply CET, is the rate resulting from expenses and taxes on credit operations, whether contracted or offered by individual or legal entity.
How it works
The financial institution is responsible for providing the calculation sheet of the CET to the applicant, prior to the contracting of a credit transaction.
In it must be informed the values of each operation and their corresponding percentages, the borrower of the credit can not carry doubts. It is up to the financier to detail the flows involved in the calculation, as well as to explain that the CET represents the conditions in force at the date of the operation.
In addition, the spreadsheet should be contained in the contract of operation, and the CET attached in the advertising reports of operations.
How is it calculated?
The CET must be represented as an annual percentage rate, including all taxes of the operation, such as interest rates, insurance, tariffs, among other charges that may be charged.
According to Resolution CMN No. 3,517, of 2017, the calculation of CET is done using the following equation:
Understand what each term in the formula represents:
- N: is the term of the contract, being referred in days;
- j: jth interval between the date of payment of periodic expenses and the date of the initial disbursement, being established in calendar days;
- FCj: are the amounts collected, including interest, amortization, registration fee, insurance premium or registration renewal fee, in addition to any other charges;
- dj: means the date of payment of amounts collected, whether periodical or not (FCj);
- d0: is the date of approval of the loan / credit by the financial institution (FC0);
- FC0: corresponds to the amount of credit given, less any charges paid in advance.
If you wanted to do an example simulation, Procon’s webcet tool is perfect for this, just fill in the fields and click on Show CTC.
- What is IOF? Understand Personal Loan
What is CET?
Okay, you already know what CET is, but you must have wondered what it is, right?
The CET simplifies the life of the consumer so that he can see with greater transparency the different offers of credit made by financial institutions.
Thus, the requester can choose the one that best fits in his profile.
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