How to calculate financing interest? Understand

How to calculate financing interest? Understand this technique 

Understanding how to calculate financing interest is important when you want to avoid abusive charges.

This is because it is not uncommon to find contracts with absurd increases that exceed the market margin.

Therefore, knowing how to calculate this interest helps to avoid this type of situation, which can disrupt your financial life.

And the good news is that in today's article you will see simple and practical ways to do this.

So, to learn how to check interest rates efficiently, keep reading! 

Financing interest: a real controversy  

You've certainly heard someone speak out against financing, and the argument is always based on the type of interest rate.

There are many beliefs, so the most widespread is that the rent cpays more than the financing interest.

And, in part, this thought may even make sense, especially when we compare the return rate on an investment with the value of interest applied to financing.

But what these people don't tell you is that the financing It only becomes a villain when you have no idea about the fees charged.

This is because, if you know how to calculate financing interest, you can establish methods to reduce this charge, which makes the contract more advantageous.

And, especially when we talk about purchasing a vehicle or property, renting can even be profitable and bring facilities, but if the priority is stability, the conversation changes.

Therefore, determining whether financing is advantageous or not depends on the signing of a clear contract, signed by someone who understands what they are doing.

And this must begin by calculating interest, so as to avoid the situation of paying practically triple what is owed at the end of the contract.

That said, the good news is that today we'll learn how to calculate and compare these rates, so stay tuned!

Total Effective Cost x Interest Rate 

When we talk about how to calculate financing interest, the first idea many have is to compare the amount borrowed with the total cost of the installments.

Thus, let's suppose you borrowed R$ 50,000.00, to pay in 46 installments of R$ 1,500.00, which in the end would total R$ 69,000.00.

Subtracting the amount borrowed from the total repayment, the remaining amount is R$ 19,000.00. Is this interest?

As simple as it may seem, we must say that no, the calculation is not done this way, and the reason lies in the concept of CET (Total Effective Cost).

When you use values in such a simple way, it is simply considered that you took one value and paid another.

However, we must remember that in financing there are other costs, which go far beyond simple interest per term. loan.

For example, administrative fees, documentation and insurance are also included in the financing installment amount.

These items are not interest, which is why they are considered in the Total Effective Cost of the financing, which includes interest + all these other items included in the final amount.

It is important to note that the Central Bank stipulates that the CET must be clearly displayed to the customer, so that they must have easy access to this information.

Therefore, only after knowing the CET is it possible to begin to understand the interest charging of the contract.

How to calculate financing interest? 

By now you've understood why it's not so simple to calculate interest by simply subtracting the amount borrowed from the amount paid.

Likewise, it is also understood that the CET is the true factor responsible for this differentiation, and that this must be considered before calculating interest.

But, after knowing all this, the question still remains: how do you calculate the interest on the loan?

The first thing you need to know is that the interest in your contract must be clearly stated in your contract.

Therefore, it is common to include a clause with the interest rates charged per year on the amount made available in the financing.

But, be careful, as we have already said, the increases on top of the value do not correspond only to interest.

Therefore, if your contract states, for example, 7.99% per year in interest, but when calculating you realize that you are being charged R$ 11.98%, you must also consider the CET.

It's worth mentioning that this is a more complex calculation, which considers a series of items, so it may be easier to ask your manager for clarification.

However, the general rule is that the interest charged must be in accordance with the contract, and must be increased by the amount corresponding to the CET items.

Citizen Calculator 

Knowing how to calculate financing interest requires a series of knowledge and information.

However, this can make life a little difficult for those who don't understand anything about the financial sector.

And, if this is your case, know that there is a way to avoid racking your brains, and this is the Citizen Calculator.

THE Citizen Calculator is a resource provided by the Central Bank which aims to help clarify important financial calculations for citizens' daily lives.

And the good news is that it allows you to make calculations regarding financing with fixed installments.

These calculations explicitly demonstrate the interest charged on the contract, based on the information provided.

It's worth mentioning that the calculator only gives you a basic idea, because, as we've already said, the CET varies according to each contract.

Therefore, it's best to always keep an eye on your contract and ask the professional responsible for it at your bank for clarification.

Very high interest rates: can you contest them?

After receiving all the information, you certainly already have an idea of how to calculate financing interest.

After all, we've already explained that you need to consider the interest specified in the contract and the Total Effective Cost of the financing in order to find the corresponding real value.

But in some cases, after doing the calculations you may end up realizing that the values don't add up.

Therefore, even considering the CET, it is still much higher.

In this case, the first step should always be to seek out a specialist so that they can perform the calculations in more detail, taking into account items that might be overlooked in an amateur assessment.

If the professional also finds values above this, you should immediately contact the manager responsible for your financing contract.

He must provide you with information regarding the charge, and if it is not justified, you have the option to request compensation.

This remedy consists of raising a dispute in the contract, so that the amounts charged are readjusted to the correct rates.

This way, you can pay only what you owe, without suffering financial losses caused by inconsistent charges.

It is worth mentioning that the dispute is only valid when the amount charged is different from that specified in the contract, and is not justified by the financing's APR.

Furthermore, we must always consider that the interest applied to any type of financing must be within the market average.

This way, you avoid the charging abusive interest, and you can be sure that knowing how to calculate financing interest is essential for a profitable credit experience!