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Brazil: where credit grows on trees

Consumers can pay for purchases in 17 installments, on any credit card and without interest rates.

Brazil credit
Shoebiz store offering a pair of shoes at 10 interest-free installments. (Juan Sebastian Tello/GlobalPost)

SAO PAULO, Brazil — The global credit crunch has hit borrowers from Wall Street to London to Hong Kong. Then there’s Brazil, where even the poor can pull out the plastic to cart home flat-screen TVs, stereos and cappuccino machines.

Credit is not only bountiful but virtually free and democratic. It’s all thanks to interest-free payments — Brazil’s version of an installment plan. Only this plan allows consumers to buy their products in up to 17 installments or more on any credit card and without interest rates.

These attractive payment plans aren’t new. But in the past two years, with low inflation and a booming economy, cash-strapped Brazilians are more confident than ever before.

“Low-income consumers believe that their moment has finally arrived,” said Marcelo Neri, an economist at the Getulio Vargas Foundation. “Brazilians are now making up for years of holding back on spending.”

Riding the credit wave, Brazilians are borrowing their way into a better future. Inflation is hovering around 4.5 percent, which Brazilians consider low compared with the whopping 2,500 percent inflation of 1993, a record year.

Banks guarantee payment to stores and take on all the risk in case consumers miss a payment. Yet, stores, consumers and banks have a common understanding: missing a payment's due date will lead to painful interest rates, especially because Brazil's interest rates are among the highest in the world. And consumers recognize they're not always getting the best bang for their buck — stores often charge more for products sold under installment plans.

With customers eager to buy more products on credit, retailers want to make sure they keep their clients happy by stretching the installment plans as far as they can.

In April 2010, consumer credit totaled $267 billion, representing an 18.2 percent annual increase, according to Brazil’s Central Bank.

Casas Bahia, a successful chain of shops selling home appliances and furniture on credit, has extended its payment plans from 10 installments to 17, and sometimes more, in the last year, said manager Marcilio Bonfim.

Maria da Conceicao, 58, has been spending her paychecks at Casas Bahia for the past 13 years and calls her home an extension of the department store.

“I work as a housekeeper and earn about $600 a month and if I had to pay upfront, I would not have a bed to sleep on,” said Maria as she paid for two blenders and a DVD player in 10 interest-free payments.

Like Conceicao, most low-income consumers in Brazil spend an entire year paying off their debt, allowing them to own goods that otherwise they could not afford.

“I prefer to pay in 10 or more installments, I am used to it and it allows me to own more stuff,” said Ronaldo Rodrigues, 57, a janitor. “My entire house was bought at Casas Bahia: refrigerator, microwave and washing machine.”