Total Annual Profit and Total Annual Cost, our financial allies
Items such as Total Annual Cost and Total Annual Profit help us compare when choosing savings, investment, or credit option, it is important we understand them well. Generally, when we have an amount of money and we don't want to spend it, we look to deposit it in a savings or investment account, which saves our cash, but also which can make it grow.
Usually, in these cases we do not know clearly which institution to go to or which account to choose; the same happens when we want to hire a credit; because we do not know who offers us the most accessible, cheapest, or profitable option.
We know that currently, all workers are users of financial products and services (because at least we have a payroll account); however, to have the best option in any of these, we would have to compare.
For example: if we want to buy an appliance, we should review the brand, price, features, and warranty offered. The same should be done with financial products and services.
Of course, carrying out this comparison process, in the case of household appliances, is easier, because generally these products are gathered in the same place, with the same name or denomination.
In the case of financial products, however, it is a little more complicated, because we have to be familiar with some terms that allow us to make differences, and we also have the disadvantage of not finding them in the same place, with the same name or denomination. This forces us to look for more information.
Generally, in order to compare financial products, it is necessary to go to the different institutions (be they banks, savings banks); or, we can simplify the search if we take a virtual tour of the pages of the financial institutions, in order to know some indicators that allow us to select the best option according to our needs.
It is important that we always keep in mind that this virtual consultation should not replace our visit to the financial institutions (at least two or three), which we find more attractive during our search on the web.
Because there are specific indicators that are not published on the websites, or accurate information on the interest rates and commissions to which these products and services are subject is not included.
Notwithstanding the information that we may consult in order to know the advantages and characteristics of the different products and services offered to us, it is essential that we are familiar with some indicators that will facilitate the task of comparing and choosing what is most convenient for us, according to our own interests.
Total Annual Profit
The Total Annual Profit is an indicator, expressed as an annual percentage, that allows you to compare the financial returns (before taxes), offered by the different savings or investment accounts, minus the costs related to the operation; as in the case of commissions, and assuming that the interest earned will be reinvested in one year and that no withdrawals will be made.
According to Circular 35/10, issued by Banco de México, as of March 31, 2011, it is mandatory for banks to inform their clients of the Total Annual Profit, of any financial product that includes the word "savings" or "investment" in its denomination, whose amount is less than 400 thousand Investment Units (approximately 1 million, 979 thousand, 339 pesos).
Therefore, if we want to obtain the highest yields, before contracting, we must verify the amount of the investment, the term and the yield of the period that corresponds, as well as the validity of the offer of the Total Annual Profit of propaganda or publicity, in different institutions (remember, at least two or three). We should never hire a savings or investment product without knowing these elements, because we could lose money or take the worst option.
Total Annual Cost
In the case of loans, we must look for the Total Annual Cost, which is the element that provides us with information on the cost that a loan will have during a year, without considering the VAT on commissions and interest to be paid.
This indicator (annual percentage) facilitates the comparison of the cost of products such as credit cards, car loans, mortgage loans, personal loans, and payroll loans, among many others; offered to us by the different financial entities.
But when consulting the Total Annual Cost it is important to verify that it is the same product and the same conditions, so that the comparison is valid.
It doesn't matter much what the product is called, but, for example, we can't compare a classic or basic credit card with a gold or platinum card (or its equivalent), because they don't have the same conditions, commissions, and costs.
As in the case of the Total Annual Profit, the Total Annual Cost is calculated with a methodology established by the Bank of Mexico; however, there are different elements or components for its calculation.
It is also important to know that there are two options for the Total Annual Profit and the Total Annual Cost, one rate in advertising, and another different one in the contract; that is why the recommendation is to check the websites and visit the two or three best options in branches. This will allow us to have more elements to choose the product or service that suits us best.
In most cases, the Total Annual Cost that is recorded in the advertising is first-hand information; however, it can be calculated with an average interest rate of the product in question; which means that it is a general value. This type of data is not useful, nor definitive, for comparing or making a decision about a loan.
If the Total Annual Cost is found in the information of a contract, this value depends mainly on the date of its celebration; the interest rate with which it is calculated, is determined by the type of credit and the client. It is important, in these cases, to remember that the conditions in which we contracted a credit must coincide with what we were offered.
It is important, in these cases, to remember that the conditions in which we contracted a credit must coincide with what we were offered.
Where can we find Total Annual Cost calculators?
On the Bank of Mexico's website: www.banxico.org.mx, we can see a calculator for different types of credit (with fixed or variable payments), such as Personal, Automotive, Mortgage, Payroll, Asset Acquisition, Pawn, and Working Capital.
To use them, we only need to have data like:
Periodicity of payment: weekly, fortnightly, monthly, bimonthly, quarterly, four-monthly, half-yearly, annual, and with a single payment on the due date,
Amount of Credit,
Amount of the periodic payments,
Amount of any additional charges to be covered that were not included in the periodic payments.
With this data, the calculator that the Bank of Mexico makes available to us will give us the results on the credit and how expensive it is.
It is important for us to know that all the calculations offered by the credit calculator or Total Annual Cost, are projected without including VAT.
Likewise, the calculator allows us to consult various simulators that will help us find and compare, in one place, different institutions, financing schemes, and costs; through calculations made with the data we provide (terms and amounts, among others), which will allow us to evaluate the option that best suits our needs.
Some tools that we can find, are automobile credit simulators, personal credit, payroll credit, mortgage credit, INFONAVIT credit, and credit card calculators, minimum payments, savings, investment, sending remittances, etc.
Let's approach the institutions, learn about the elements that provide us with information, compare and obtain the best savings, investment, and credit options.