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.)

The Chilean Peso has a somewhat more exciting history than our dollars and pounds.  For starters, it didn’t even exist until 1975, when it was introduced to replace a highly devalued Escudo.  Just in the last 10 or 15 years we expats have gotten to witness all kinds of neat changes, such as the pink plastic 2.000-peso bill, the replacement of the 500-peso bill with a coin, and the two-tone 100-peso coin.  This last one was an unfortunate turn of events for Chile’s urban children, since for some reason most, if not all, of those supermarket vending machines full of cheap toys only accept the old 100-peso coin.  (I often tell my son that I have none of those coins on me, and most the time it’s true.)

Read more about the Chilean Peso on Wikipedia.

Change is good

Change, that is, coins and 1.000- and 2.000-peso bills, are worth more than their proportional value compared to higher-denominated bills.  For some reason there aren’t enough of them around, and people do not spend them wantonly.  If you go into a store to buy an item for $1.500 and hand the cashier a $10.000 bill, he will automatically ask you, “No tiene más sencillo?” regardless of how many 1′s and 2′s he actually has in the cash register.  I actually had a cab driver once accuse me of taking a ride in his taxi just to break a 10.  And forget about $20.000-peso bills (if you’ve ever actually seen one).  I avoid ATMs that dole them out.  Tip: if you’re in a bind, a good place to break large bills is the supermarket, the bigger the better.

Gambando y quinando

Ever wonder where the U.S.-coin nicknames penny, nickel and dime come from?  Me neither.  But it’s helpful to know their equivalents in Chile.

• Gamba – 100 pesos
• Quina – 500 pesos
• Luca, lucrecia – 1 thousand pesos
• Gabriela – 5 thousand pesos
• Arturo – 10 thousand pesos
• Palo – 1 million pesos

I can’t give you unequivocal etymologies for these terms, but it’s pretty clear that “Gabriela” and “Arturo” refer to the the historical figures depicted on those bills, Gabriela Mistral and Arturo Prat.  Gamba means “prawn” in Chile, and palo means “stick”, so you’ll have to get creative with those.

Luca is the one of these you really need to know.  It can be used generically to mean “money,” as in Al proyecto le faltan lucas.  And it’s used in multiples to refer to other bills and quantities of money.  You will probably hear un billete de cinco lucas more often than una Gabriela in reference to a 5.000-peso note.

The following are the most common financial indicators used in the media and in prices for services.

IPC (Indice de Precios al Consumidor): Known as the Consumer Price Index in English.  This indicator measures the purchasing power of the Chilean peso, based on the variations in cost of a standard bundle of goods and services.  While the IPC itself has a positive total daily value (e.g. 100,5), you will often see it expressed in terms of its accumulated variation over a prior period such as a month (e.g. -0,02) or a year (e.g. 6,3).

UF (Unidad de Fomento): The UF is a ficticious unit of currency with a value equal to a set number of pesos (e.g. 22,000) that is readjusted daily according to the IPC. Services can priced in UF, as well as savings and investment instruments, credit instruments such as mortgages, home rental prices, even school tuitions.  Salaries, on the other hand, are always set in pesos (related search).

UTM (Unidad Tributaria Mensual):  Another reajustable unit similar to the UF.  Government fees and fines are often expressed in UTM.

UTA (Unidad Tributaria Anual): The UTA is equal to 12 UTMs.

You can look up past, current and future values of these indicators on the SII (linkme) web page Valores y Fechas, or read about their history in the SII news archive.

In 2007, BancoEstado introduced the CuentaRUT, a debit account free of monthly fees for which all Chileans and resident foreigners are automatically eligible, just for having a RUT (linkme).  You get a debit card and can manage your account online, including making online payments.

In a land where banks charge checking account holders a yearly/semesterly/monthly fee for every conceivable service available and/or action they perform on your behalf, and where many foreigners, self-employed and recently-employed workers are deemed unworthy of the privilege of handing over their money and being charged all of these fees (i.e. can’t get a checking account), the CuentaRUT seemed something of a godsend.

So what’s the catch?  The CuentaRUT charges a number of per-transaction fees, most significantly the 600-peso ATM withdrawal fee.  On the whole people don’t like to carry a lot of cash around, so you’ll often see acquaintances taking out as little as CH$7.ooo at one time.  That’s an 8% fee for that transaction.  Brilliant play, BancoEstado!

So while personal banking in Chile continues to be costly, it is no longer an activity reserved for the elite.  When it was introduced, I asked my kids’ nanny to open an account, and I added CH$2.400 to her net pay to cover 4 withdrawals per month.  A small price to pay to be able to eliminate all of those semimonthly cash payments.