Are you familiar with compound interest? You may understand the concept, but do you clearly understand it in practice? The big question here is: are they good or bad for me? And the answer is: it depends. That is it! Depending on the situation, compound interest can help or hinder your finances.
Follow the post today to understand how these interest rates work and when they work in your favor!
Compound Interest: The Budget Villain?
From what you can see in the explanation, if the term increases, the impact of interest on the debit balance is more incredible. The fee is charged each month again. So, getting a loan to repay in 6 months is much cheaper than making the same loan in 12 months, for example.
The truth is that in the case of debt, compound interest is always the budget villain. And the loss is exponentially more fantastic as the debt repayment deadline also increases.
Credit cards and overdrafts are the most expensive debts! If not enough, the interest charged is high. They reapply every month, which can quickly form a snowball that is challenging to control.
When are Compound Interests Allies of Financial Security?
But do not think interest in interest-only hinders your life. If you like investing and saving, they can become your best allies! In the same way, they are incorporated into the debit balance, increasing their debts. They also join the positive balance of their investments.
Now, imagine that you applied a thousand real on an investment that brings a return of 1% a month – yes, the interest on the stakes is much smaller than the loans! In that case, you will have another ten actuals of income in a month. The interest calculation will be made on $1,010 real in the following month, not the original value. Did you see how investment interest can be a hand in the wheel when investing?
How do You Avoid Interest on Interest Loans and Financing?
Considering that you have no money saved but do not want to let the dream of buying the property itself aside. Although interest rates on real estate loans are lower than personal lending rates, they are still high. And because the term is too long, the final amount paid is much higher than the contractor’s.
Have you stopped to think that using the consortium is an excellent way to finance real estate, vehicles, and services? Without interest, the main charge of the consortium is the administration fee. It reimburses the company responsible for organizing the receipts. Also, it applies to the common fund to ensure that all participants achieve their objectives. As the administrator applies the money invested, she uses compound interest well!
The important thing here is to understand that the amounts charged in this modality are much smaller than the traditional loans, apart from the fact that you will not need to give an entry fee, which is captured in the bank financing.
Now that you know compound interest, you can choose the best way to apply your money! To learn more about it, check out a particular post and ask questions about where to invest your money.
Pay Your Overall Loan with Extra Payments
You can make extra payments that help you get freedom from the loan. In this way, the overall cost will be reduced. It happens when you cannot fully pay an unprotected personal loan. After 1st February 2011, people took unprotected loans, and you can make excessive payments of up to $8,000 in a year without penalty. You can pay a 1% penalty on the entire amount repaid for exorbitant expenses over $8,000. If you paid back across the restriction, you must charge 90%. You can pay a 0.5% penalty for the overall amount you have paid again. It can only happen if the loan is in the final year of the agreement.
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