CET: what the total effective cost is and how to compare offers

When you ask for a loan, the first rate you see is usually the interest rate. But it is not everything you pay. The Custo Efetivo Total (CET), or total effective cost, is the rate that gathers the full cost of the operation, and it is what lets you compare offers for real. The rules in this guide are the Brazilian ones.

What the CET is

The CET is the total cost of a credit operation expressed as an annual percentage rate. It takes into account the money you actually receive, every payment you make over the contract and everything charged besides interest. In Brazil, financial institutions must disclose the CET before you sign, under rules of the National Monetary Council. The rule in force is CMN Resolution 4,881/2020 (opens in a new tab), which replaced Resolution 3,517/2007.

What goes into the CET

The calculation includes every cost of the operation that you pay because of the contract:

• The agreed interest.
• Taxes, such as the IOF.
• Fees, such as the registration fee or an asset appraisal fee.
• Insurance tied to the contract.
• Other expenses charged to you, even when paid to third parties hired by the institution.

Charges that only exist if you pay late, such as the penalty and late-payment interest, are left out. For those, see the guide on late fees and interest.

An example with numbers

Imagine a loan of R$ 10,000.00 in 12 installments at 1.5% a month. With no other charge, the installment would be R$ 916.80 and the effective cost 19.56% a year. Now add charges, with illustrative values: a registration fee of R$ 100.00 taken out of the amount released, insurance of R$ 10.00 a month and IOF of R$ 250.00 financed, that is, added to the debt. The result:

The interest rate is the same in both columns, but the CET goes from 19.56% to 30.38% a year. That is the difference the interest rate alone hides: you receive less than you asked for and pay more than the interest installments suggest.

How to use the CET to compare offers

• Compare similar offers. The CET compares well operations with the same amount and the same term. Different terms change the installment and the total paid, and a lower annual rate may come with more months of payments.
• Ask for the CET in writing, preferably together with the installment, the amount released and the total to pay. It must be in the offer before you sign.
• Look at the numbers side by side: CET, amount released, installment and total paid. Each answers a different question: how much it costs, how much reaches your account, how heavy it is each month and how much leaves in the end.
• Ask what is optional. Insurance and services you do not have to buy can be declined, and making credit conditional on buying another product is a tied sale, prohibited by the Consumer Protection Code (opens in a new tab) (art. 39, item I). Insurance that the contract itself requires does count in the CET.

CET and the interest rate

The interest rate is the remuneration of the money lent. The CET includes that remuneration and everything else the operation costs. That is why it equals the effective interest rate only when there is no other charge, and is higher when there is. To see why a monthly rate is not simply the annual one divided by 12, read the guide on nominal and effective rates.

How Finasst calculates the CET

In the simulation, open "Advanced options" and add the contract's charges: fee, insurance, IOF and others. Mark as financed whatever will be added to the debt. The "Effective Annual Cost" result includes the interest and every charge you entered.

Use the values from the offer you received and compare the result with the CET the institution disclosed. Finasst's calculation is an estimate and may differ slightly from the official one because of calendar and rounding details, but a large difference means some charge was left out of your calculation or of the offer. It is worth asking.