Every Brazilian at some point in life has already had some financial need and has been tempted by the loans. Some gave in to the temptation and concluded the dream or nightmare of having the extra money in their pockets. Others were more resilient but had persistent financial problems. It is fully possible to take out a loan and calculate the interest on it, making it clear what the final amount will be.
Simulation of Interest on Loan?
Online, several calculators are available that do all the work for you. However, we will not always have a computer or internet access to be able to do a comparative or even know how to calculate our interest and CET, which is the Total Cost of the loan. However, let’s start with some math basics for these calculations.
The interest regime will be simple when the interest percentage is only on the principal amount. No new interest will be charged on interest generated in each period. Principal Amount is the initial amount borrowed or applied, before we add up the interest. We have a formula that goes something like this:
J = p. n
Where J is the interest, P is the principal capital, i is the interest rate and n is the number of periods. Adding the interest to the principal amount will be the amount, that is, the final value with interest, which is calculated with the following formula:
M = P. [1 + (I. n)]
So to calculate interest of 12% a year over a period of twelve months just interpret that is the rate i is 0.01 and n is equal to 12. With a rule of three, you can do the rate calculation also for broken periods in days, months, or years.
Compound interest is known as interest on interest. And its calculation is done as follows:
M = C. (1 + i) ª
Where M is the amount, the initial capital C, i the interest rate and the time. When you are unable to pay a loan or financing installment, compound interest charges on the installments you have not paid. The same goes for investments that you have made, in which the same interest rate is calculated.
For the calculation of the CET, we still add the value of the IOF and other costs for the financing or loan. The CET formula or Total Effective Cost is given in the following formula:
Calculation of CET
This is the formula for calculating the CET, with all its details.
Our recommendation here on Credit or Debit is that you do not try to do these calculations in a hurry and on time. Try to get the values and rates that are important for a comparative calculation in order to find the best loan or financing option for you. Knowing these calculations makes it easier to create a pre-filter of what’s worth and what’s not worth. So practice a little at home, always save some websites with online calculators and prepare better financially.