CAT vs. interest rate: what should you compare?
Understand Mexico’s Total Annual Cost metric, how it differs from an interest rate and why both matter when comparing loans.
In this article, CAT means Costo Anual Total, Mexico’s standardized annual total cost of credit. It is a Mexican disclosure metric and should not be treated as identical to APR figures in other countries.
An interest rate describes the price of borrowed money. CAT aims to express the annualized cost of credit after incorporating other applicable charges. A loan with a lower rate can therefore be more expensive if it carries substantial fees or insurance.
The difference at a glance
| Measure | What it describes |
|---|---|
| Interest rate | Primarily the financing cost of the borrowed balance |
| CAT | Estimated annual total cost under the official assumptions |
On an amortizing loan, periodic interest is generally calculated from the outstanding balance. CAT is broader and may incorporate interest, fees and insurance under Banco de México’s methodology.
What the interest rate includes
For a simple monthly simulation, a 24% nominal annual rate corresponds to approximately 2% per month. On an opening balance of $50,000:
50000 x 0.02 = 1000That $1,000 is first-month interest only. It excludes an origination fee, monthly insurance, taxes and other charges.
Same rate, different total cost
Consider two $50,000 loans at 24% for 24 months:
| Scenario | Monthly payment | Fee | Monthly insurance | Estimated total cost | Approx. CAT |
|---|---|---|---|---|---|
| A: no extra charges | $2,643.55 | $0 | $0 | $63,445.32 | 26.82% |
| B: extra charges | $2,843.55 | $1,000 | $200 | $69,245.32 | 39.93% |
The interest rate is identical. The origination fee and insurance make scenario B materially more expensive.
Why an estimated CAT can differ
An independent calculator can use only the inputs supplied. The institution’s official CAT may differ because of VAT, payment frequency, disbursement date, financed fees, mandatory insurance or charges not entered in the model.
Use an estimate to screen scenarios, but base the final decision on the lender’s official disclosure and contract.
How to compare offers
Compare the annual rate, official CAT, total monthly payment, total amount repaid, origination fee, insurance and prepayment terms. Model both offers with the same amount and term whenever possible.
The loan calculator can add fees and insurance to a base payment. See also loan origination fees and monthly loan insurance.
Frequently asked questions
Is CAT the same as the interest rate?
No. The rate measures financing interest; CAT is designed to summarize the broader annual cost under a defined Mexican methodology.
Does CAT include VAT?
It depends on the product and methodology. Check the assumptions accompanying the official figure.
Should I compare CAT or the monthly payment?
Both. The payment indicates affordability; CAT and total repayment help reveal cost.