Economist Salvador Valdés Prieto has challenged recent reporting regarding the conventional maximum interest rate (TMC) for consumer loans in Chile, arguing that the actual cost to borrowers is nearly 50 percent annually.
In a letter to the editor of Pulso Sábado, Valdés Prieto contested the claim that the current TMC sits at 31.54 percent. He stated the figure is actually 40.90 percent, a discrepancy of nine percentage points.
The compounding effect
Valdés Prieto explained that the current convention for calculating the TMC relies on a simple multiplication of the monthly interest rate by twelve. This method ignores the mathematical reality of interest compounding, which significantly inflates the actual annual cost for the borrower.
"The annualized correction, taking into account the effect of compound interest, results in a TMC of 49.509 percent," Valdés Prieto wrote. "Rounding, it is 50 percent annually, nothing less."
The economist further analyzed the impact of the 2013 legislative reforms. He noted that the specific formula introduced by former Senator Eugenio Tuma currently suppresses the maximum rate.
According to Valdés Prieto, if the legal framework were stripped of this special formula, the TMC for consumer credit would effectively skyrocket to 81.9 percent annually.
The debate over the TMC calculation arrives as lawmakers weigh potential reforms aimed at adjusting the interest rate caps for consumer lending. Critics of the current system argue that the complexity of the calculation hides the true financial burden placed on families utilizing short-term credit.
Valdés Prieto’s intervention highlights a technical but critical gap in how financial data is communicated to the public. By adhering to a simplified, non-compounded reporting standard, the system obscures the true annual percentage rate that consumers pay on their debt.
Financial analysts often point to the TMC as a primary tool for preventing predatory lending. However, if the baseline calculation fails to reflect compound interest, borrowers may remain unaware of the total cost of their credit agreements.
