Interest rates in consumer credit

The interest rate charged on the consumer credit can be fixed or variable:

  • Fixed interest rate loans – the instalment remains constant during the agreement period and the customer knows from the outset the total amount of interest payable;

  • Variable interest rate loans – the interest rate applied to the principal outstanding is reviewed with the same frequency as the reference rate.

 

In consumer credit, there are limits to the charges that can be practiced (cap rate regime).

 

Interest rate and other charges

In addition to the interest rate, customers must pay fees and other charges associated with the consumer credit agreement.

In order for customers to know the cost of the loan, credit institutions must present:

The annual nominal interest rate represents the cost associated with the loan interest.

The annual percentage rate of charge represents the total cost of the loan, including the annual nominal rate and other charges levied by the credit institution. It is expressed as an annual percentage of the total loan amount.

The calculation of the annual percentage rate of charge includes:

  • The interest;
  • The fees;
  • The taxes;
  • The insurance required to obtain credit;
  • The maintenance fee of a current account, which must be opened for the loan management;
  • The costs related to the use of a means of payment and utilisation of credit, if applicable;
  • The remuneration of the credit intermediary, if it is paid by the consumer, when the credit intermediary is not tied;
  • Other charges associated with the credit agreement.

The calculation of the annual percentage rate of charge does not include:

  • The amounts payable due to non-compliance with any of the obligations of the credit agreement;
  • The fees for early repayment of the loan;
  • Notary costs;
  • The amounts, other than the price, that have to be borne by customers when purchasing goods or services, are dealt with on a business deal or on credit.

The total amount to be reimbursed corresponds to the total amount that the customer pays for the loan, i.e. the sum of the loan amount and the respective interest, fees, taxes, insurance and other costs.

In consumer credit, stamp duty falls on:

  • the amount of interest and fees charged – 4%

  • the amount of credit used:

    • 0.12% per month for periods of less than 1 year;

    • 1.5% for periods of more than or equal to 1 year and less than 5 years;

    • 1.5% for periods of more than 5 years;

  • the capital outstanding each month for loans of indefinite duration – 0.12%.

The annual percentage rate of charge and the total amount to be reimbursed should be used by customers to compare different credit proposals because they reflect the total costs of the credit.

 

Cap rates

Banco de Portugal calculates and publishes quarterly the maximum interest rates in force for each type of consumer credit. These rates constitute maximum limits on the charges that can be contracted in each type of credit agreement.

The cap rate regime has been in force since 1 January 2010 and applies to consumer credit agreements that fall under Decree-Law No. 133/2009, of 2 June.

The maximum rate system provides that:

  • The maximum rates correspond to the annual percentage rate of charge practiced by credit institutions in the previous quarter, in the different types of agreements, plus one quarter. No rate may be higher than 50% the average annual percentage rate of charge of all consumer credit agreements concluded in the previous quarter;

  • The annual percentage rate of charge of the overdraft facility agreement with a one-month repayment obligation may not exceed the maximum rate set for credit agreements in the form of an overdraft facility with a repayment term greater than one month;

  • The annual nominal interest rate of the credit overrun agreement may not exceed the maximum rate defined for credit agreements in the form of an overdraft facility with a repayment term greater than one month.

Until 30 June 2013, the maximum rates corresponded to the average annual percentage rate of charge charged by credit institutions in the previous quarter, in the different types of agreements, plus one-third.

The maximum rates applicable to consumer credit agreements are defined according to the following types of agreements:

  • ‘Personal credit’, which includes the following types of credit:
    • ‘For education’, ‘health’, ‘renewable energy’ and ‘financial leasing of equipment’;
    • ‘Other personal loans’, which include loans for the purchase of goods and services not included in the previous subcategories, namely furniture and household equipment, as well as credit granted without a defined purpose. It also includes the concentration of loans in a single loan (consolidation) or the restructuring of loans previously held by customer when they have no mortgage guarantee.
  • ‘Car loans’, which include the following types of credit, with the respective differentiation between new and used vehicles:
    • ‘Financial leasing or long-term rental’ – credit for the acquisition of vehicles involving leasing or long-term rental operations with the option or obligation to purchase;
    • Subject to the retention of the ownership and others – credit for acquisition of vehicles not included in the previous subcategory, whether or not the transaction involves the retention of the ownership of the vehicle.
  • ‘Revolving credit’, which includes the following types of credit:
    • Credit cards, credit lines, bank credit accounts;
    • Overdraft facilities, including those with a one-month repayment obligation and those with a repayment term of more than one month.
  • ‘Credit overruns’.

The maximum rates applicable in the 1st quarter of 2019 (Instruction No. 27/ 2018) are as shown in the following tables. The maximum rates for the 4th quarter of 2018 are also presented (Instruction No. 20/2018).

Type of credit agreement Maximum APR
4th Quarter 2018 1st Quarter 2019
Personal credit For Education, Health, Renewable Energies and Financial Leasing of Equipment 5.9% 6.2%
Other Personal Loans (non-specific, home, consolidated and other purposes) 13.2% 13.9%
Car loans Financial Leasing or Long-term rental: new 4.8% 4.9%
Financial Leasing or Long-term rental: used 5.9% 6.0%
Subject to the retention of the ownership and others: new 9.3% 9.7%
Subject to the retention of the ownership and others: used 12.0% 12.4%
Credit cards, Credit lines, Bank credit accounts and Overdraft facilities 15.3% 16.6%
Type of credit agreement Maximum ANR
4th Quarter 2018 1st Quarter 2019
Credit overruns 15.3% 16.6%