Financing: The Real Cost That May Surprise You

What happened?

According to G1, videos of car financing negotiations have sparked debates on social media about the true cost of financing. Many people are surprised to realize that what they pay monthly is not all that their debts truly cost. This is primarily due to the existence of the Total Effective Cost (CET), which includes not only interest but also fees, insurance, and other loan charges.

With high levels of indebtedness in Brazil, where over 80% of families are in debt, understanding these costs is crucial to avoid financial traps. The CET is a tool that can help in this assessment.

Why does it matter?

The CET reveals the real cost of a loan. When you only look at the interest rate, you may have a distorted view of what you will pay over time. For example, a loan of R$ 1,000 with an interest rate of 12% per year can, after including fees and taxes, have a total cost of about 43.9% per year.

This means that at the end of the financing period, you could be paying much more than you expected. Marcos Crivelaro, a finance professor at USP, suggests a simple rule: focus on how much you take and how much you will return in total.

Practical impact on your wallet

For those earning a salary and paying bills, understanding the CET is crucial. Imagine you decide to finance a car. If the monthly payments seem affordable, but the CET is high, it could mean that your budget will be strained over time. A practical example: if you finance a car for R$ 30,000 with a CET of 40% per year, at the end of 5 years, you could end up paying around R$ 50,000.

With current high interest rates and inflation, credit becomes even more expensive. Therefore, it is necessary to be cautious. Before taking on any debt, conduct a careful analysis of your budget and the long-term impact it will have.

What to do?

Here are some tips to protect yourself from unpleasant surprises when financing:

• Request the CET: Always ask for the Total Effective Cost before signing any contract. This will ensure you have a clear view of all the costs involved.
• Compare offers: Don’t settle for the first proposal. Compare different financial institutions to find the best option.
• Note all costs: Besides the CET, pay attention to registration fees, insurance, and other charges that may apply.
• Analyze your budget: Before taking on new debt, see if it fits into your financial plan, keeping in mind the 50/30/20 method. Allocate 50% of your income for needs, 30% for wants, and 20% for savings or debt payments.
• Consider paying off more expensive debts: If you already have debts, evaluate the possibility of refinancing them for a lower interest option.

Connection with financial organization

Understanding the CET and how it affects your financing is an essential part of your financial health. Using the 50/30/20 method can help you better organize, ensuring you have room in your budget to save and avoid unnecessary debts. ADXIS can be a valuable tool in your financial organization journey, helping you track your expenses and plan your finances better.