Many people who have financed an asset, such as a car or property, dream of paying off the advance financing. After all, nothing like getting rid of payments for good and not paying interest anymore, right?
In fact, it depends! It is not always advantageous to make this anticipation. There are a few steps – and calculations – needed before concluding whether or not it is worth doing.
Then check out the information we have gathered to know everything you need on the subject!
How does financing interest work?
As you may know, financing is a request for credit from the bank. He offers them money for the customer to make a purchase and this amount is returned in installments with increased interest and other fees.
The number of installments, their price and the amount of interest are characteristics that can vary a lot according to each bank. In addition, the conditions agreed in the contract also influence whether the installments will be larger or smaller, for example.
The system used by the bank to grant the financing can work with fixed value installments or with constant amortization. In this second case, the value of the installments gradually decreases.
In both situations, there is an interest rate that can be calculated on a monthly or annual basis so that you can evaluate its effects on payments.
What happens when discharge is anticipated?
Whenever a monthly payment of the financing is paid, the amount referring to the portion of the money borrowed and another amount related to bank fees are included. In advance, a discount on these fees is granted.
In other words, you still have to pay the amount granted by the bank in full, but you can pay less interest when anticipating the discharge. However, calculating this discount does not consist of simply removing all fees from the final amount.
In fact, some fees continue to be charged even when the customer chooses early discharge. The discount is calculated in proportion to the interest and the time that would still be left until settlement in the agreed period.
It is also necessary to pay attention to another thing: in financing contracted until 2007, an advance payment fee may be charged. After that year, that fee was extinguished. So, those who requested at that time need to check the information in their contract.
If you want to simulate the proportional discount conditions for your financing, you can use an advance calculator. It performs the calculation automatically and facilitates its analysis.
Is it worth paying off advance financing?
And now? Is it worthwhile to anticipate the discharge of a loan? As you saw, this answer depends on some factors and, mainly, on the information. It is only possible to understand if the decision is advantageous by analyzing the calculations and knowing the conditions offered by the bank.
Whether it is worth it or not will depend on each case. Therefore, it is essential to reflect on the details involved in this matter. If you are considering anticipating your financing, check out some essential elements that should be noted.
All bank fees
It is not uncommon to see people who make a quick calculation considering interest rates and decide that it is worth paying off a loan. However, this account does not always close. That’s because there are other fees involved in it.
The ideal is to calculate the total effective cost of financing – the GFI. And how to get to him? Considering not only interest but also the other costs of the operation. An example is the reference rate (TR), a general indicator of the Brazilian economy.
There may also be built-in costs with insurance and administrative fees, as well as taxes. Normally, these amounts will not be discounted in the payment of the financing, and the discount will be only on interest – which may make the anticipation not worthwhile.
The difference between an investment and discharge
Even considering the calculations we quoted, you may think that it is advantageous to pay off the financing to use the money you have. But there are other attractive options, like investing the amount and getting interest from it.
This is an interesting alternative because it can even help you pay the financing installments. And the way to know if it is better to anticipate the discharge or invest the money is to compare the yields.
The total effective cost of financing must be compared with the net return on investments of interest. In this way, it is possible to verify which is the higher value: if it is the GFI, it may be advantageous to pay the installments.