Government increases credit card limits and reduces interest rates to encourage consumption in Argentina

The Government wants to prop up consumption, in a context in which the pocket of Argentines is increasingly affected by inflation. First, last week, the Ministry of Economy reduced interest rates to finance the credit card minimum and for the Now 12 program. Added to this was the fact that, yesterday afternoon, Sergio Massa announced an increase in card limits to encourage payments in installments.

However, despite the drop in ratesBorrowing is expensive and can be a double-edged sword for families. Since last Monday, the interest rate to finance unpaid plastic balances or to pay installments outside the official government program has been reduced from 88% to 86% of the annual nominal rate (TNA). When adding bank commission costs, the rate goes much higher than projected inflation for this year.

When the amount financed does not exceed $200,000, as of June the total effective annual financial cost (CFTEA) will be around 171.42%.

Instead, for balances in excess of $200,000 or card purchases greater than US$200, the nominal annual rate is 103.75%. By adding taxes and fees, the actual amount to be paid by the consumer varies between 213.23% and 230.28% of CFTEA, depending on the financial institution.

A concrete example, assuming that a buyer purchases an item for $100,000 with the credit card and decides to pay it in 12 installments, but the Now 12 financing program is not available for this product category. In this case, the price will go to a total of $271,420. Or, seen in another way, 12 installments of $22,618.

If the same exercise is carried out with a product that costs $15,000 in one installment, when financing it for 12 months, the value rises to $40,713. Twelve payments of $3,392.75. Much more than projected inflation for this year, which economists place at 126%according to the latest report of the Survey of Market Expectations of the Central Bank.

“With lower interest rates and increased credit card limits, is it time to spend more? Although, a priori, it seems to be a combination that is going to generate an increase in consumption, which is logical in its genesis, it is important to emphasize the precautions when consuming with a credit card. That the rate is lower does not mean that it is low or that it is lower than inflation. Therefore, the use of a credit card to pay in installments will always be recommended in cases where we do not have another purchase alternative -for the amount, for example- or when it comes to the purchase of durable goods”, warned Nicolás Rombiola, partner of the fintech iKiwi.net.ar.

In parallel, last weekend the Ministry of Economy ordered a drop of nine percentage points for the interest rate of the Now 12 Program. A benefit that reaches the purchase of cell phones, electronics, clothing and footwear, furniture, bicycles, perfumery, tourism, gyms and toys, among 17 other items.

In this case, the annual nominal rate was reduced to 72.74%. That, when adding the administrative expenses and taxes, the total financial cost is positioned at 140% per year.

In addition, according to the official page of the Ministry of Economy, there are maximum limits for each financing plan. Although some businesses -fewer and fewer- do not charge interest, the maximum interest that a merchant can charge on the spot price was established and some examples were given.

If a customer decides to finance the purchase with the program Now 3, they can recharge 11.56%. So, an item that cost $100,000 cash would be divided into three payments of $37,186.56. A total of $111,559. That same transaction, but with the Now 6, It is divided into six fixed installments of $20,656.83. With an interest of 23.94%, the final value of $123,941.

Continuing with the exercise of $100,000, if the buyer makes the purchase with at now 12, the merchant may add a surcharge of 52.54%. That is, a total of $152,540 will be paid in twelve installments of $12,711.66. With the now 18 (87.16%), the product will end up costing $187,159, but in 18 installments of $10,397.72. Finally, with the now 24 the item is paid a final of $229,175. But it’s two years of paying $9,548.95 (129.18%) monthly.

To complement, in the absence of an update from the banks, yesterday afternoon Sergio Massa announced an increase in the credit card limit. This is the maximum that a customer can spend per month with their personal plastic (the amount can differ between a payment and installments), which varies depending on the person’s income and credit history.

For every $10,000 available in a payment, an additional $3,000 was added. For example, if a family had $50,000 of credit on the card, from now on they will have $65,000. Meanwhile, if there was a cap of $120,000, it will go up to $156,000.

Knowing this limit allows you to know when you can use your credit card and when not, depending on the item you want to buy. In other words, any purchase that impacts the expiration of the card will be deducted from the limit, which in recent years had become outdated. “If a person exhausts 100% of their limit in one payment, their card becomes useless”, explained Rombiola.

Another concrete case, assuming that the consumer has $10,000 as a limit on one payment and $20,000 to buy in installments. If a $12,000 product is purchased in 12 installments, the payment limit will become $9,000 (the $10,000, minus $1,000 of the first installment) and the available in installments will also be $9,000 (the initial $20,000, less $11,000 of the remaining installments to turn off). When the balance remains at $0, it means that no more purchases can be made, even if they are in 12, 18 or 24 payments.

“Having a better limit after the increase will allow you to make larger purchases or more purchases of smaller amounts. Despite this, it will also cause the minimum payments to be calculated on a higher amount of spending, in case we use the new limit. It is not necessary to trust that the minimum payment -which from iKiwi we advise never to use- is of values ​​similar to previous months ”, they closed.