Learn how to calculate the best cost-benefit ratio before deciding how often you will install your loan Let’s suppose that, in an advertisement, a television is offered for 18 times out of 120 dollars. Is this cheap or expensive for you? It is common for us to think only of the value of the parcel, and not of the total cost of the product. The same thing happens with the installment loan. Should I just think about the price of the installments or all interest rates and taxes on the entire debt?
Find out what to take into account when deciding how many times to split the loan to avoid unnecessary expenses.
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This will depend on how much you earn, the bills you have to pay every month and the bank’s analysis of your profile. The exact amount of each installment of the installment loan is the one that offers the best cost-benefit for your case. In other words, the installments must fit in your pocket. There is no point in paying a higher amount on each installment and committing your entire salary only with a loan. This can even leave you with more debt.
Depending on the financial institution, you can pay in 12, 18, 24 or 36 installments. Remember that the longer the period of months, the higher the rates. This means that the CET will increase. The important thing, as we have already said, is to read the banks’ proposals, calculate how much you can pay per month and find a quiet way that combines the useful with the pleasant. The good thing is that, if you want, you can anticipate the payment of the installments. You can use, for example, 13 0 money to pay off the debt. Whenever you anticipate a payment, CET decreases.
With this information, you will be able to apply here with Champion with more security and convenience.
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What is the mathematical reasoning of the installment loan?
In math classes, it was very easy to make a multiplication account, right? It was enough to take an exact, round number and make the famous “times” count. But, things get a little complicated in simple and compound interest classes, right? As difficult as it is to solve these crazy math problems, you need to understand that these interest rates make all the difference in your life.
They are, among other fees, that will determine the final cost of your installment loan. That is why you should not only think about the amount of each installment but how much interest is being charged each month. One thing is for sure: the price you will pay will always be greater than the amount of the loan itself.
Simple interest: The calculation is made from a rate applied, every month, on top of the loan amount. Let’s suppose that you are going to borrow 1,000 dollars and the interest is 3% per month.
This means that you will pay 30% of 1000 dollars, that is, 30 dollars per month plus the value of each installment until the end of the debt.
Compound interest: Based on the total amount and accrued interest in each period. It is the famous interest on interest. Following the same example as before, if you pay 3% over 1000 dollars, in the second installment the amount will be calculated from 1030 dollars and so on.
Do I only pay simple or compound interest on installments?
It would be good if it were, but that is not the reality. The fees charged on installment loans depend on the rules of each bank, the amount requested, your financial profile and the time it will take you to pay off the debt.
All of this together will determine the CET (Total Effective Cost), which is determined by the following items:
Selic Rate: Created by the government, which determines the interest charged on financial transactions.
IOF: The Tax on Financial Operations is a mandatory fee that must be charged on the installment loan.
Rates: Each bank stipulates a value over administrative activities, expenses with employees, office supplies, maintenance fees, among others.
Insurance: Some financial institutions may charge insurance if you become unemployed or experience situations that prevent you from paying off your debt.
Keep in mind that low-interest rates do not mean that the CET is lower. You need to carefully read all the contractual conditions before closing a deal. Hence the importance of comparing proposals from several banks.