Interest Rates in Argentina??

[YanquiGallego]

A friend of mine says he is paying a total of 48.000 pesos total (1.300 pesos a month) on a personal loan he took out from Standard Bank for 20.000 pesos (mind you, a reputable bank, not some loan shark or shady payday loan type operation)

This person has a very reputable civil servant type job but only makes 5000 pesos a month, so I find this cuota and the interest that they are supposedly charging extremely excessive.

He is either pulling my leg to make me feel sorry for his situation or someone at his bank is messing with him.

There's no way interest rates on personal loans in Argentina for a creditworthy, working individual can be over 100% is there??

 

[ElQueso]

That seems awfully high for a 36 month loan (based on monthly figures you gave). It would be 48% compounded monthly. Or 59% simple interest.

I've understood loans to be on the order of somewhere between 25% and 35% here, but it's been awhile since anyone gave me figures on that.

My wife has had a savings account at Santander Rio for more than a year now and was just offered a checking account, with a line of credit up to $18,000 and loans up to $150,000. When she gets back later on, I'll get her to get out the paper work and see if I can figure out the percentages and how they're compounded.

In Paraguay, most personal loans are given out with a year to pay, two payments in the year, at a simple interest rate of 20%...

 

[trennod]

That does seem high to me as well - I understand longer term mortgages are usually around 30% (this is purely information from friends and colleagues I do not have personal experience with loans here). You have to remember that inflation is factored in to the interest rates as well.

 

[steveinbsas]

Three years ago an Argentine friend showed my her AmericanExpress monthly statement.The interest rate on unpaid balance was either 49 or 59% (I don'tremember which). About the same time I had a conversationwith PatriciafromUruguay and she said the interest rate on private loans was over 50%...even if they were secured by property.

If the real rate of inflation is around 30% it's easy to se why a lender would have to charge 50% interest...just to net 20%.

 

[MrGreen]

Let's suppose a year ago ( May 2011) took out a term loan in the amount of 54K peso. The term of the loan was 3 years I was required to pay 50% per annum. At the end of each year I had to pay 1/3 the principle balance plus accumulated interest. Further assume I have access to USD all the time. In May 2011, the USD fetched 3.8 pesos so 54K pesos was about 14,000 USD. Lets assume some conservate peso devaluations against the USD.
At the end of year one, now, I would have to pay principle of 18K pesos (1/3 of 54) plus interest of 27 K (50% of 54), a total of 45K. Today I can get 5.5 pesos per USD so I only need to trade about 8000 USD to pay principle and interest.
In May, 2013 lets suppose the peso is trading at 6.5 (a conservative projection). I would owe principle of 18K pesos (1/3 of 54) plus interest of 18K (50% of 36K outstanding principle), a total of 36K pesos. To acquire this amount of pesos I need to trade about 5500 USD.
At the end of year 3, I have to pay18K principle plus 9K interest, a total of 27K. If the dollar is at 7.5 I only have to change 4000 USD to pay off the loan.
To recap. I borrowed the equivalent of 14K USD. I paid back a total of 17,500 USD over the 3 year life of the loan. Do the math. It comes to about 10% per year in terms of USD.

 

[YanquiGallego]

Mr Green, those calculations are based on someone with access to dollars and with the intent of paying back the loan using the upward trend of the USD.

My friend (like most Argentines) does not have dollars, or access to them for that matter, so at this time, his 20.000 peso loan which he is having to pay (supposedly) at 48.000 over the course of 36 months is based on his (current) 5000 peso a month Argentine salary.

 

[dennisr]

The ~50% sounds about right. Though the simple interest rate may be advertised at 25%, they have a bunch of surcharges: mandatory insurance, monthly loan service fees and who knows what else.... Think it works like the old revolving charge card thing. But for the grace of God go I

 

[garygrunson]

Santander Rio offered me a line of credit and I think the rate was 42%. Of course I am not interested. But inflation is high. I wonder what the illegal loan sharks charge.

 

[John.St]

A friend of mine says he is paying a total of 48.000 pesos total (1.300 pesos a month) on a personal loan he took out from Standard Bank for 20.000 pesos (mind you, a reputable bank, not some loan shark or shady payday loan type operation)

This person has a very reputable civil servant type job but only makes 5000 pesos a month, so I find this cuota and the interest that they are supposedly charging extremely excessive.

He is either pulling my leg to make me feel sorry for his situation or someone at his bank is messing with him.

There's no way interest rates on personal loans in Argentina for a creditworthy, working individual can be over 100% is there??

The nominal interest is 67%, but in fact he is paying 5.58% per month or a real annual interest of 91.86% on a Fixed-rate mortgage - pretty stiff, that. Subtract inflation for the same 3 years

Spreadsheet formula for monthly payment: =((5.58/100)/(1-(1+5.58/100)^(-36)))*20000

monthly interest 5.58%
36 payments
loan 20,000
yields a monthly payment of 1,300

en.wikipedia.org/wiki/Fixed_rate_mortgage#Pricing