Credit cards

Credit cards have their pros and cons in Chile, just as they do in the rest of the world.  If you manage them conscientiously, they can save you time, smooth the occasional financially rocky period, and earn you goodies.  Lower your guard for a while, and they’ll turn around and bite you.

One of the first things you’ll notice about credit card ads in Chile is that they don’t tout interest rates.  Interest rates here are astronomical, period.  A Banco Santander credit card I had up until recently had an annual credit rate of 46.08%.  I couldn’t believe it when I calculated it from the monthly interest rate; I had to email them to confirm it.

So is this a nation of “deadbeats,” who pay their balance in full every month?  Or are they so desperate for consumer credit that they’ll pay interest that high indefinitely?  No and no.  Chileans like to buy in cuotas.

Cuotas

You go to the supermarket/drugstore/department store and at the checkout you hand the cashier your credit card and carnet.  “Cuotas?” she asks.  What she’s  talking about is dividing the payment into separate, smaller monthly charges to your credit card.  This is a service offered by Transbank (the administrator of Visa, Mastercard and Diners Club cards in Chile) to credit-card-accepting merchants, and by large retailers directly to consumers.  In the case of Transbank, it’s actually two services:

• 3 cuotas precio contado (al contado means to pay the full cost up front rather than on credit): Transbank charges your card for the purchase in three installments equal to one-third of the price.  One charge today, one a month from today and one two months from today.  Transbank pays the merchant in installments as well.  No interest is charged, so technically, this is a good deal.
• 4 a 24 cuotas: Choose a number from 4 to 24 and the merchant will calculate a fixed monthly payment that does include interests.  After a grace period of one month, those payments will be charged every month to your credit card.

Department store and supermarket credit cards (such as Falabella’s CMR and D&S’s Presto) define their own cuota systems; they generally offer the possibility of paying in 2 to 36 cuotas.  I just did a test on falabella.com and came up with this:

Cost of item to purchase: CLP 199.990

(Why is paying in 6 cuotas so expensive compared to the other four options?  I can’t say for sure, but 6 is the number of cuotas that is selected by default on the web site.)

So using cuotas, interest rates are on par with rates in the U.S., which means they’re higher than anyone should be paying.  And you can’t pay the debt off early. The advantage cuotas have over regular credit card debt is that the interest is simple rather than compounded.  Also, the interest rate on cuotas is fixed in advance, but with rates like the ones above it’s a negligible advantage.

So ideally you should treat your Chilean credit card as a charge card, or if you know you’re going to be coming up short soon, buy in cuotas (especially 3 cuotas precio contado).

Other costs

As with any other personal banking product in Chile, you may come across fees that seem absurd.  I had Cencosud’s Mas card for a month or two before realizing that they charged a fee of CLP 1.000 per month to insure themselves against you defaulting even if you didn’t use the card.  Before you sign up for any credit card, ask them to explain fines and recurring costs to you.  Be specific and reduntant.  For example, say “Hay algún cobro fijo mensual?” and then “Hay algún cobro fijo anual?”  Make sure that the convenience of having multiple cards is worth the cost.

Pros

There are several advantages to having at least one Chilean (i.e. peso-denominated) credit card.  One is that international, dollar-denominated Visa and Mastercard cards charge a currency exchange fee on your transactions in pesos or other currencies, usually 3%, a fee you can avoid with a local card.  Another is that you can pay all of your utility and other service bills automatically each month by signing up for Pago Automático con Tarjeta (PAT).  (In regards to that last recommendation, to avoid a headache, make sure you sign up using the account holder’s card, not an additional card.)