O Total Effective Cost (TEC) is an indicator designed to show in a clear and transparent way the real cost of a loan or financing. Unlike the interest rate, the CET includes all additional chargessuch as IOF, insurance, bank charges and administrative fees. For companies, understanding the CET is essential, as it shows exactly how much will be paid at the end of the credit operation.
When assessing credit, many companies focus only on the apparent interest rate. However, the hidden values in the CET can make the total cost rise much higher. Ignoring this calculation can lead to negative surprises in the cash flowThis can unbalance the budget and even jeopardize planned investments. Therefore, considering the CET is a way of avoiding uncontrolled debt and make safer financial decisions.
Calculating the CET involves taking into account all the amounts that will be paid over the course of the contract. Basically, the total cost of operation (including interest and charges) by net amount actually received by the company. This result shows the effective percentage of the cost of the operation, allowing you to compare proposals fairly between different banks and institutions.
Knowing the CET puts the manager in a strategic position when negotiating credit. With it, you can compare different offersThis way, you can identify which one really weighs less on the budget and ensure that the decision to fundraise is sustainable. By adopting this practice, the company gains more control over your financesThis protects your cash flow and strengthens the predictability of growth.