The CAT is the total annual cost of your credit, represented in a percentage, which includes all costs and expenses incurred during a year, regardless of the amount of the credit.
The CAT is used to compare different options of the same type of credit (for example, credit cards or credits to buy a house); and choose the best option, knowing the total credit price.
The credit calculation of this indicator
It is based on a methodology established by the Bank of Mecan. However, we can say that there are two types of CAT, the CAT for advertising and propaganda (also called informative CAT) and the CAT for contract, which is the real CAT of our credit and does not necessarily coincide with the CAT for advertising and propaganda.
Also, before hiring a loan, read all the small letters. Sometimes, institutions do not talk to you about CAT in their advertising, but about the annual interest rate of credit, which is only part of the Total Annual Cost.
What is the CAT for advertising and propaganda?
The CAT for advertising and propaganda that we find in brochures and on the websites of banks, is purely informative and not definitive.
The CAT increases when you do not pay on time or do not pay, as late payment fees and default interest rates apply, for example. Your statement and your contract should inform you about your personalized interest rate.
For advertising and propaganda, the CAT is calculated, at least, with the cost of:
- Average interest rate
It should be noted that the fee for commissions can be very variable. It is intended to cover direct costs and administrative expenses related to the credit incurred by the banking institution. Some commissions are for credit opening, credit provision, collection costs, among others.
You will also realize that the CAT does not include VAT, since in some types of credits it is not charged, or it varies according to the federative entity of the country in which you are.
To show you how the CAT is calculated for advertising and propaganda on a credit card, we give you two examples. The first option has a CAT of 30.5% and the second has a CAT of 72.45% for a credit line of 10,000 pesos.