Portugal’s credit market can be genuinely hard to navigate for anyone who has to deal with it. The problem is not that applying for a loan is particularly difficult — quite the opposite, the process itself is relatively simple. The trouble is that bankers and various credit institutions often rely on dense technical jargon. For most people without a background in finance, these terms can be hard to make sense of.
Credit in Portugal
Reading an article on the Portuguese consumer association DECO Proteste’s website, you may find certain passages genuinely hard to follow — without an explanation of the specialized vocabulary, some sentences are almost impossible to parse. Here’s an example:
From a non-customer’s perspective, the lowest rate on the market is pegged to the 12-month Euro Interbank Offered Rate (Euribor), with a spread added of 3.25%.
Banks in Portugal
If you want to take out a mortgage to buy property in Portugal, the interest rate naturally becomes the main point of focus.
Compared with many countries, Portugal’s mortgage rates are higher, but you can apply for a very long repayment term — up to 35 years.
In Portugal, it is quite common to be in debt for life, and taking out loans for all kinds of large and small matters is nothing unusual. It was not until 2009 that a legal cap on usurious interest rates was introduced. This cap is the maximum rate a credit institution may not exceed when lending, and is calculated based on the TAEG (taxa anual efetiva global, the effective annual interest rate) — the standard rate typically charged across the industry. This piece of European legislation applies to consumer loans ranging from 200 to 75,000 euros.
If a consumer decides to give up on the product they originally intended to buy with the loan, they can also cancel the loan application. In addition, if they want to repay early, the penalty is now lower than before: previously the penalty increased the loan’s interest rate by 2-5%, and now it may not increase by more than 0.5%. Also, financial institutions are now responsible for checking a loan applicant’s repayment ability.
Portugal implemented the European directive on credit agreements. This has had a significant effect particularly in the commercial sector and on consumer habits. In Portugal, most loans carry a floating interest rate.
Consumer Credit Institutions in Portugal
Most of Portugal’s consumer credit institutions are actually French! Take Credibom, for example — it belongs to Sofinco, a company under the French group Crédit Agricole Consumer Finance. Credibom’s own website states that the effective annual interest rate (TAEG) on its Visa credit card loans is 24.75%… There is also the well-known Cetelem, owned by one of the market’s best-known credit institutions, BNP Paribas.
It is clear that Portugal’s consumer credit market is largely an overseas extension of French credit institutions. Other credit institutions include GE Money Bank (the consumer finance arm of General Electric) and Barclays. Banks with traditional lending operations, such as CGD (Caixa Geral de Depósitos, Portugal’s state savings and credit bank), BCP (Banco Comercial Português) and BPI (Banco Português de Investimento), focus more on traditional services such as home mortgages and business loans.
A Small Glossary of Common Portuguese Credit Terms
Taxa de juro: the loan’s interest rate.
Taxa anual efetiva, TAEG: the effective annual interest rate on a loan, equivalent to what was called TEG (taxa efetiva global, the effective overall rate) before 2016. It is the real rate obtained after factoring in all loan-related costs (including insurance, application fees, etc.), making it easier to compare and choose between different lenders.
Euribor: the Euro Interbank Offered Rate, used as the reference for calculating floating-rate loans. Other reference rates exist but are used less often than Euribor.
Spread: the bank’s profit margin, calculated together with Euribor to arrive at the final loan interest rate. If Euribor is 3% and the spread is 1%, the loan’s interest rate is 4%. This rate moves up or down depending on the borrower’s default risk. In other words, the spread is what the bank earns from the loan.
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Sources
- Portugal Days — original Portuguese-language article on credit terminology, cited as the source for this glossary.
