how to calculate total effective cost cet
CET is not the contract interest rate wearing a fancier name, it is the result of an internal rate of return calculated over everything that leaves the borrower pocket, which is why it is almost always above the advertised nominal rate.
When there is no fee, insurance or IOF, CET matches the nominal rate exactly, because the IRR cash flow has nothing else to discount.
The nominal rate stays at 2% per month in the contract, but CET reveals the real 3.17% monthly cost, 1.17 percentage points higher because of the added charges.
The borrower pays installments calculated on R$ 10,000.00, but only receives R$ 9,714.40 net; that gap between what leaves and what comes in is exactly what pushes CET above the nominal rate.
CET (Custo Efetivo Total) is a standardized annual rate that all Brazilian banks must disclose for credit operations, as required by CMN Resolution 3.517/2007. It exists so consumers can compare different loan offers on equal footing, since it bundles interest with every mandatory charge. If a lender does not present the CET, you can demand the statement.
Because the advertised rate covers only interest, while CET adds IOF, registration fees, insurance and any other cost through the IRR cash flow; in the R$ 10,000.00 example, those items total R$ 325.60 and raise CET from 2% to 3.17% per month.
Yes. Resolução CMN 4.881/2020 requires including IOF, calculated under Decreto 6.306/2007, in the CET cash flow, because it reduces the amount actually disbursed to the borrower, even though it leaves the lender to go to the government.
No. In the compared example, the same 2% monthly rate produces a 2.00% CET with no fees and 3.17% with registration fees, insurance and IOF; the CET gap between offers almost always comes from added charges, not the interest rate itself.
⚠️ Educational simulation. The CET uses Newton-Raphson to solve for the internal rate of return of the cash flow.
Resolução CMN 3.517/2007, CET mandatory disclosure. Newton-Raphson method.
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