CREDIT LOANS FOR THE YOUTH:

NOT A POLITICAL PLAY!

August 15th, 2013

One of many promises of running presidential candidates is to ease credit facilities for the growing

young population.

In this issue of our weekly newsletter we story-tell you why credit is so important and complex that

political candidates should not use as electoral promises.

WHAT ARE CREDIT LOANS? LET’S SEE SOME CONCEPTS...

Credit: A contractual agreement in

which a borrower receives so-

mething of value now and agrees

to repay the lender later in the fu-

ture, generally with interest.

Interest: The amount charged, ex-

pressed as a percentage

of principal borrowed amount, by

a lender to a borrower for its use.

Regulation: The

“SuperIntendencia del Sistema Fi-

nanciero” is the government enti-

ty responsible to regulate financial

institutions duly authorized to ex-

tend credit and loans, to protect

and prevent fraud.

Financial Institutions: Include

Commercial Banks, Estate Banks,

Community Banks, and Thrifts.

Reason to carry credit – Types To start your company and transform your ideas into profit To buy a piece of land for a house, a house or repairing an existing one, To pay your tuition, acquiring goods or services and oth-er debt obligations.

THE COST OF A CREDIT –INTERESTS AND CHARGES

An interest rate, charged by a financial institution, may depend on:

-The borrower’s credit risk profile (their income, their credit history and the pro-

bability that the borrower loses his paying capacities),

-Governing laws and regulations, established by laws, the Central Bank, the

Bank Law and the Financial System Regulator (Superintendencia del Sistema Fi-

nanciero),

-The industry’s competitive landscape,

-financial institution management and internal conditions such as number of

clients.

Besides interest rates, financial institutions also charge administrative fees.

IN CONCLUSION...

Beware: Promising to ease credit conditions and to lower interest rates to the younger popula-tion is a politicians' populism. If a political candidate were to improve and promote looser credit conditions, he or she should incentive domestic and foreign investment in the financial system, by favoring a competitive mar-ket place and eliminating industry restrictions that snowball into higher costs and tighter credit. As a young responsible citizen financial decisions are key for your future. Take action and raise your hand to call-on politicians using this populist speech!