Tuesday, November 28, 2006

What Is The Real Cost?

Mexico has not had mortgages or credit to buy big ticket items but credit has come to Mexico.

Grupo Elektra was one of the innovators who first started giving credit to the "common man" in Mexico. I'm not sure just how many ways they offer credit but here in San Miguel their store is always busy. They sell washing machines from the simplest kind where you feed the clothes through rollers to wring the water from them to a regular washing machine, refrigerators, stoves and other appliances. They also have launched a rent-to-own Linux-based PC program. Hmmm...I wrote several days ago about our neighborhood getting wired. Maybe that is a result of Elektra's program. I've seen credit advertised for cars, motorcycles, 4-wheelers, and bathroom fixtures and tiles. The list is growing.

Is it good or bad? For most Mexicans, credit and the cost of money is new. The Mexican people are smart. Their Ancestors, the Mayans, built amazing cities and roads that exist even until today. I think that for the majority, they just need a little education.

Let me give you an example. One of my friends told me that their maid told them that she and her husband were going to buy a motorcycle so he could get to work easier. They don't have a car and San Miguel is getting bigger and they thought it would be better to have the motorcycle instead of relying on buses. The maid needed a paper signed saying she was employed because they were buying it on credit. My friend asked them if they were getting a good deal. In the conversation that followed she asked questions about the rate of interest that they would have to pay. The maid seemed a little confused so my friend suggested that if the maid and her husband would like to bring the papers by they would look over the papers with them.

The maid and the husband did just that. I don't remember what the interest rate was but it was very high. My friend and her husband did just a little math for them and showed them what the actual cost of the motorcycle would be. Then continued on with the different ways that interest can be computed. They got the message right away. This motorcycle was going to cost a lot more than they thought. It ended up that my friend loaned them the money at a very reasonable rate. The maid wanted to work extra to pay it off sooner because that interest was costing them money. Well, as I said earlier the Mexicans are smart.


Anonymous said...

You are very polite, It is a pleasure to have people like you...

I think same... the credits are new in mexico, and the people do not have careful to manage them


La Gringa said...

Here in Honduras credit cards carry an annual interest rate of about 30% PLUS a service charge of about 30%, so that even if the balance is paid monthly, the card holder is still paying 30%. If they don't pay off monthly, they are paying 60% per year.

Mortgage rates have decreased from 20% when I first came in 2001 to about 12% -- still extremely high.

Places like Elecktra require 20 to 30% down and charge interest rates of about 30% -- although the actual interest rate is almost never advertised and very vague and even devious answers are given when you ask about them.

I, too, have tried to explain to others what a terrible "deal" this is. I've shown them that they will be paying 2 to 2 1/2 times the cash price.

It seems that credit and credit cards are much more readily available in the past year or two.

I think it is going to do a lot of harm to this country. People are very naive and don't read or understand the fine print.