What is the CFT and why is it important to look carefully before taking out a loan?
When applying for a loan, Total Financial Cost (CFT) is a key factor in comparing the different offers of loans in the financial market. We tell you what is hidden behind these 3 acronyms that we see a lot, but which we do not usually pay attention to.
If you are thinking of taking out a loan, surely the first thing you will do is compare the interest rates offered by the different banks, in order to decide which is the best option that suits your needs.
But beware. In addition to the interest rate and the amount to be returned, you have to pay attention to the Total Financial Cost (CFT). This number includes not only the interest rate, but also other associated charges and expenses. It represents the real cost of your loan. That is what you will end up paying for it.
What is the Total Financial Cost (CFT)?
The CFT is the final percentage you will pay as a refund of the credit you requested. It may be indicated with or without the Value Added Tax (VAT). If you are a final consumer, you will have to pay VAT on the interest paid each month, which will impact the value of the fee.
Some entities detail it as the Total Annual Effective Financial Cost (CFTEA), which refers to the calculation of the CFT in one year.
Banks are required to report this amount, since it is the most accurate and transparent date with which customers can make a comparison between the different proposals they have at their disposal. Thus, they must display in their branches blackboards with information about the CFT and the interest rates of the credit lines they provide.
What expenses does it include?
The CFT includes the interest rate, but Also other concepts. In Argentina, this cost is composed of:
- The basic interest rate que Determines the fee to be paid. It can be fixed, variable or mixed.
- Evaluation expenses of the person requesting the loan and financing of the applicants.
- Insurance contracting expenses (life and fire, among others), which are mandatory.
- Opening and maintenance expenses of the account that will be used to pay the fees.
- Operating expenses.
According to the Central Bank of the Argentine Republic (BCRA), the CFT must be analyzed in depth in each case, because there are factors that vary by person. For example, age influences the value of the insurance to be paid.
We suggest you read the terms and conditions carefully before signing anything, since these concepts can be modified on the fly according to the criteria established in the contract.
Another aspect to take into account: in all documentation related to loan contracting, the CFT is identified with a typography 5 times larger than the one used for the rest of the information. In this way, at the time of signing, you will easily find the CFT of the credit you are taking and ensuring its value.
Why is it important to know the CFT?
It is essential because, as we explained before, it is the best indicator of the total cost that you will have to face when requesting any type of credit. Remember that the CFT will increase the final cost of your loan by several percentage points.
Many people base their decisions taking into account only the interest rate. But that doesn’t say too much. A bank may give you lower interest rates than another, but its CFT may be higher.