You do not know what CAT is, but nevertheless you have read it when the summary of your credit card arrives at your home, because CAT is the acronym that belongs to Total Annual Cost that shows you an amount that can determine the choice of your first credit card or if you already have one and want to change it, it will determine the choice of that change, then …
What is CAT and how to calculate it
- You already know what the cat is in terms of Total Annual Cost, because the Bank of Mexico translates it as the indicator that allows the calculation of the total financing of a loan, including the interest rate and other elements that are involved in the payment, such as the insurance premium, the commission for opening, the annual fee, etc.
- If you do not know how to calculate it, keep in mind that any entity that grants you a credit will calculate the CAT and will notify you, because by obligation it must show it in the advertising of the credit it offers and also in your account statement.
- Well, by law it must be communicated in this way in all the products it offers since it is a way of showing transparency in the offering of credits and their costs.
How to calculate the CAT
Without having to solve a calculation or use a CAT calculator, you can realize it with a simple step-by-step example …
- Suppose you accessed a loan with a CAT that reaches 45%
- When accessing the credit, you use the entire line of credit with the average interest rate that the bank offers you.
- By paying the annual fee and ending the debt in 36 months.
- In this way you would pay the loan amount and 45% on the entire credit line assigned to you due to commissions and financing.
- In other words, to compare different credit cards it is not enough just to know and calculate the interest rate, but to incorporate the CAT calculation so that you can have the details of the real cost of financing the card.
- However, the CAT is calculated according to the client and depending on the amount you take as such.
CAT calculation example
- Suppose you took a loan of 5,000 pesos for 12 months and you have a commission of 500 pesos, this amount is 10% of the amount you requested, it can be a loan without interest but with a CAT of 10%.
- If you took a loan of 10,000 pesos, the CAT would not be 10% but 5%.
- Anyway, since the CAT calculation is not simple, you can enter the Banco de México calculator at http://www.banxico.org.mx/CAT/Calculo_CAT.jsp?
- Complete the field with the amount of your credit.
- Enter the commission for opening.
- Enter the amount of money you received.
- Enter the number of drawdowns and click Continue.
- Continue completing the fields following the instructions.
- Finally you will know the Cat with a summary of the credit data as you have indicated in the previous steps.
What is the CAT on a credit card?
When you finance yourself you ask yourself what is the cat on a credit card, because you must earn interest for which you need to know …
- The annual interest rate, which tells you the percentage that the bank will charge you if you do not pay the balance in full on the cut-off date.
- If you use your credit card rationally, you benefit because the bank will assign you a lower interest rate on your line of credit compared to that of another person who only pays the kitten.
The cat bancomer of the affinity Unam BBVA credit card consists of 35.2% without VAT of the weighted average cat, but when it comes to balance in annual terms it is 27%.
Total annual cost
- Total annual cost is a measure that standardizes financing by incorporating expenses and costs associated with a loan.
- Their knowledge is imperative because it allows you to evaluate the different credit offers by knowing the interest rate percentage regardless of the term and therefore you benefit by choosing the best financing cost.
What is the average CAT?
The Bank of Mexico defined the formula for calculating the CAT in such a way that it takes into account …
- The value of the line of credit when it comes to credit cards or the credit granted in the case of loans granted.
- The commission for opening, etc. including annuity.
- The amount of monthly payments.
- The monthly payment on the due date, which may be the minimum payment.
- On the other hand, when talking about CAT you must distinguish that although the institutions have the obligation to communicate the cat to you, they differentiate it depending on whether you are a current or future client, therefore the calculation is variable.
- If you are a current client, they will charge you a real or individual Cat, which you can see in your account subtraction and is calculated based on real data and will influence the commissions of the credit card, the annual interest rate and the line of credit that they granted you.
- If you are a prospective customer, the bank will calculate the average cat based on information materials about an average customer and their advertising based on the average interest rate and average credit lines.
- Therefore, being an average cat, you will pay a real cat that will be different from the evaluation of that average customer.
- In any case, knowing the average cat may not be relevant for you if you are a client who is dedicated to paying the total balance owed and therefore has a habit of avoiding paying interest.
- You should also know that banks have the obligation to add in your credit card statement the comparative table of the total annual cost, the average cost, the annuity and the weighted average effective rate.
- All this with the aim that you can make a comparison on the commissions and costs of your products.