Low-interest loans: how to find them?

Everyone knows that there is no shortage of loan options on the market.

What is interest?

Interest is present in almost all types of financial transactions.

They are charged when you are late paying a bill, when you use your overdraft credit, and, using today's example, when you borrow a certain amount.

You fees result in paying a higher amount than you would have initially paid, and depending on the industry or type of transaction, these interest rates may be higher or lower.

Each type of transaction works with specific interest rates.

In the lending industry, interest is basically the amount you pay to be able to use the money you borrowed for a certain period of time.

Basically, they work as a “rent” for the money that the institution lent you.

The search for the lowest interest rate on the market

I won't lie to you: this is a mission that requires a lot of research!

To find out which institution offers the lowest interest rates on the market, you need to do a lot of research and compare the rates offered on the market.

For example:

Option A may offer an attractive interest rate, but with a very short repayment term;

Option B has a more viable payment term, but the interest rates are very high;

Meanwhile, option C offers lower rates, an attractive repayment term, but the bureaucracy involved in applying for the loan seems to be endless! Each and every financial institution will have positive and negative aspects to its transactions.

Therefore, it's up to you to do your research and compare the conditions offered by each one before making a decision and closing a deal with one.

Interest rate, simple interest and compound interest

Although there are several types of rates, when it comes to interest, these are perhaps the best known to the general public.

Interest rate:

More generally, this is the percentage charged by the institution lending the money or by whoever sold a service or product and paid in installments.

This rate works something like this: if the rate on R$ 1 thousand is 5%, the debtor must pay R$ 50 more on the original amount.

Simple interest:

This type of interest is applied only to the initial value of the debt.

For example: If you borrow R$ 2,000 and the interest offered is R% 51 per month, your debt calculation will always take into account the initial amount—in this case, R$ 2,000. In other words, the interest added to the amount will be R$ 100 each month.

Unlike the model we're going to talk about next, this one is very uncommon to use..

Compound interest:

This is undoubtedly the most common model used in the market. Better known as "interest on interest," this model consists of an interest rate applied month to month.

However, unlike the previous model, in this one, interest is added to the new amount. For example:

Following the previous example, when taking the value of R$ 2 thousand with a rate of 5% per month, the value is R$ 2,100.00 in the first month.

That's R$ 100 in interest. In the second, the rate of 5% remains, but it will be on top of the R$ 2,100.00, resulting in R$ 2,205.00 and so on.

What factors determine the interest rates on a loan?

Some factors that may affect the interest rates offered by the institution are:

The customer's relationship with the bank

In this regard, the better your relationship with the institution – such as payment history, for example – the greater the advantages offered when applying for a loan tend to be.

The credit line model made available

There are several types of loans available on the market: personal, payroll, secured, overdraft... Each of them has its own particularities and interest rates.

The risk of default

In this regard, the bank or institution considers the chances of receiving the amount back. The greater the risk perceived by the bank, the higher the interest rates offered.

In addition to these, the credit policies used by the company and even the state of the economy – such as the Selic rate, for example – can also directly affect the calculation of these rates.

Models that offer the lowest interest rates

Below, we list two lines of credit that may be a good option for those who prioritize low interest rates.

Payroll loan:

This modality has the advantage of offering one of the best interest rates on the market, lower than those applied to personal loans, for example.

Perhaps the biggest disadvantage of the model is that it is not an option available to everyone, being aimed especially at INSS retirees and pensioners.

In the case of a payroll loan, the installments are automatically deducted from the client's salary/benefit, directly from the payroll.

Since payment is made directly from the payroll, the bank understands that the risk of default is lower, resulting in lower interest rates.

Loan with collateral:

Another popular option for those seeking low interest rates is a secured loan. In this type of loan, the customer can offer their property or vehicle as collateral.

In this model, the lower interest rates (averaging 1.25% per month) and the longer payment term are the main attractions.

Conclusion

As mentioned at the beginning of the text, the main secret to getting the best conditions when taking out a loan is research.

Through this research, you can compare options and choose the form and conditions that best fit your financial situation.

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Nathalia P. Silva 7 de October de 2021