RIO DE JANEIRO, Brazil — Just about everybody knows that carrying a balance on a credit card is a bad idea. Far better, if you can, to pay off your debts every month and avoid interest charges.
But for many people around the world, that’s just not an option. And in Brazil, where the number of people writing bad checks and falling behind on their loans reached record levels last month, credit cards are an extraordinarily bad deal for anyone who can’t pay in full.
According to data released by Brazil’s central bank last week, the annual percentage rate or APR on credit card cash advances and “revolving” loans on credit cards reached an eye-watering 414.3 percent in September. To put that in perspective, if you took out a $100 cash advance today on one of these cards and paid it off at $36 a month, you’d end up paying a total of $389 over 11 months, according to this credit rate calculator.
The rates for general credit card purchases aren’t quite as bad, but they’re still extraordinary compared to the United States. The average APR for regular purchases on a “household” credit card in Brazil was 129 percent in September, according to Brazil’s Central Bank. For contrast, “low interest credit cards” were on offer in the US on Monday with an APR of 11.62 percent, according to Bankrate.com.
At the other end of the spectrum, credit cards that offer cash rewards for spending — typically the most expensive cards to get — were on offer with an APR of 15.27 percent.
The Brazilian Central Bank doesn't impose a ceiling for credit card interest rates; instead, the market decides.
Mauricio Santoro, a political science professor at Rio de Janeiro State University, said credit cards serve a different function in Brazil from in the US. In the States, people use plastic every day for purchases as small as a cup of coffee. Brazilians are more likely to use credit for rare splurges like a widescreen TV.
The average Brazilian is poorly educated about financial systems, Santoro said, and that’s partly a legacy of Brazil’s past financial woes.
“If you go back like 20 years, to the time of very high inflation, it was very hard to get a loan, and it was very hard for people to understand how much money was worth,” he said.
According to Santoro, even college-educated Brazilians are still struggling to comprehend that banks are in the business of making money off people, and that loans can often be debt traps.
Last month, Serasa Experian, a credit monitoring agency in Brazil, announced that the percentage of checks being returned for insufficient funds reached the highest level in Brazil’s history between January and September — 2.1 percent. The agency also announced in October that customer and business loan defaults were at record highs.
In 2013 GlobalPost published an in-depth report on how the average Brazilian was coping with a foundering economy. Back then, just about everyone we interviewed in Sao Paulo was neck-deep in debt and struggling to survive from day to day.
Since then, Brazil’s financial woes have significantly deepened. Thanks at least in part to a massive corruption scandal at the state-run oil company Petrobras, the country is in a recession, unemployment is rising and the Brazilian currency the real has lost more than 40 percent of its value in the last two years.
In the midst of this crisis, banks are making hay off at least some of their customers.
“The interest rates are amazing. Not even the Mafia can charge these rates,” Santoro said. “It would shock Don Soprano: ‘What are you talking about? 400 percent interest rates! We can’t do stuff like that.’”