The IOF rate is present in many types of credit operations, including personal loans, so it is very important to know how this concept applies in practice.
The IOF – Tax on Financial Transactions is a tax levied on any type of credit transaction, whether in foreign exchange, insurance or real estate securities. In the personal loan, this amount is used in each paid installment.
Because it is a value that applies to all types of credit procedures, it is likely to occur most likely in the following circumstances:
- Payroll loans;
- Special checks;
- Debt purchases made abroad;
- Credit card purchases;
- Insurance Operations (private, life insurance or health care);
- Real estate securities;
- Investments (Agribusiness Letters of Credit and Real Estate Letters of Credit, CDBs, DI Funds and Short Term Funds).
- How does the IOF calculation on personal loan work?
- What is IOF for?
- How does IOF impact personal loan application?
- But what is the relationship between CET and IOF anyway?
- Stay tuned for the following information:
How does the IOF calculation on personal loan work?
The rate varies by transaction type. Generally, the amount charged on each transaction is 0.38% plus a daily rate.
The IOF is applied to credit operations performed by:
- Financial Institution;
- Legal entity or between individuals and legal entities;
- Companies that perform cumulative and continuous credit advisory services.
As the fee amount is not updated monthly, the customer only gets to know the exact percentage at the time he contracts the service. The contracted amount is limited by 3%, and even if the operation chosen exceeds 365 days, the maximum rate will still be this.
What is IOF for?
Like the Selic Rate, the IOF is a regulatory instrument. The Brazilian Government analyzes through this tax the demand and supply of credit in the country.
How does IOF impact personal loan application?
This rate is part of the Total Effective Cost (CET) of the operation. It represents a portion of the final loan amount, and can also help you choose the best CET.
But what is the relationship between CET and IOF anyway?
Demonstrated at an annual percentage rate that includes all charges for credit operations, such as tariffs, interest rates, insurance, CET is the rate that matches all percentages present in credit operations. Like interest, IOF is one of the percentages included in this final cost.
It is important to evaluate the values offered by financial institutions, as many companies may offer cheaper percentages, but when compared to the total amount of the transaction, the value is not favorable.
Stay tuned for the following information:
- The IOF does not apply to installments already paid, ie if you have already made the payment, the fee can no longer be applied;
- The fee is not applied to interest;
- The IOF in credit is limited to 3% of the contracted amount, that is, even if the credit operation exceeds 365 days, the maximum rate will remain this.
As it is a recurring rate in credit operations, it is very important to keep an eye on and up to date on all amounts and fees applied to each type of service, as this way you can avoid potential complications when paying off the loan.