Have you ever heard of the TEA, TCEA or TREA? If you want to access a loan from a bank, you have to know these terms to better understand the costs associated with this financial aid and compare well which service is best for you. In the following note The Republic We talked with Jorge Ojeda, a Finance professor at the UPC, and we left you with very useful information to understand what interest rates are and the importance they have when applying for a loan. Take note!
What is an interest rate?
According to Jorge Ojeda, a professor at the EPE Business School of the Peruvian University of Applied Sciences, the interest rate It is the price to pay to use an amount of money in a financial operation, which is usually placed in percentages and is applied in certain periods of the year.
What is the Effective Annual Rate?
The TEA is the interest rate that banks or financial institutions charge the user for the price of the money they have lent. The higher the TEA, the higher the interest you will receive while you save your money, and these will grow more. Instead, if the Effective Annual Rate is higher in a credit, the interest you will have to pay will be higher and the loan will become more expensive.
What is the Annual Effective Cost Rate?
The TCEA is the rate that allows you to calculate how much a loan or the use of a credit card would cost. Likewise, it includes other administrative expenses, such as charges, commissions and insurance. That is, it is equivalent to the total cost that a person must pay when applying for a loan. Remember that the higher the TCEA, the more the loan will cost.
What is the Annual Effective Rate of Return?
The TREA is a rate paid by the financial institution to those people who deposit their funds in the bank. It is used to calculate the return on an investment after deducting regular costs and associated expenses. In this sense, the products applied by the TREA can be term deposits, CTS, checking account, salary account and other savings products.
What rate should I ask for to apply for a loan?
According to Jorge Ojeda, before applying for a loan from a financial institution, it is important to know the Effective Cost Rate because it will allow you to compare the market options. That is, it will be useful to know the percentage values of the banks that offer these credits.
“The ideal is to have an Effective Cost Rate because there we have everything we are going to pay. Why is this important? Because I can compare the TCEA that includes what I will really have to pay for the credit. So, I go to some entities, I ask them for this information and so I will decide for the least,” said the finance expert.
Why is it important to know the types of interest rates?
It is essential to know the meaning of these banking concepts before requesting a loan to better understand the associated costs and compare the interest rates of various entities to decide which one offers you the best benefits.
Source: Larepublica
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