What is financing is a question that always arises for those who want to buy a property on credit.
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This is because it is known that financing is a common method for purchases in the housing sector.
But is financing only used in this case? After all, what is financing? How does it work in practice?
If you are a little lost on this subject, and want to learn more about it before entering into a contract of this type, then you have found the right material.
That's because today we'll see everything about the subject, which will certainly help you in this decision, so don't miss the content below!
What is financing?
The topic of financing comes up frequently on social media.
Whether it’s the presentation of a new financing program, news about the interest rate variation, or by other headlines.
As a result, it ends up being a popular topic, so that everyone knows that it is a type of term credit.
Its main characteristic is precisely the term, since it is possible to obtain financing for up to 30 years.
But, after all, what is the exact definition of financing?
Popular knowledge about financing is not incorrect, but it is worth saying that there is a more precise definition of the term.
In definition, financing is an advance of credit, in which the bank provides credit in advance, which will be paid by the customer in installments.
This term is usually medium to long term, and can reach up to 30 years, or 360 installments.
For this reason, financing is often used to grant credit for the purchase of higher-value goods.
This includes real estate, cars, studies, equipment and many other assets.
This description may raise a common question, which is: What is the difference between financing and a loan?
In fact, the definition suggests that there are many similarities, after all, in a loan you take out a loan to pay in installments.
The main difference is in the term, as the loan does not offer such a long period for repayment.
Furthermore, there is a direction, that is, it is made for the purchase of a specific good.
This does not happen with a loan, so you can use the money however you want.
Therefore, it is clear that this modality is used for purchases of specific goods, with medium to long payment terms.
What types of financing are there?
By now you already know that financing is for higher value goods.
Therefore, financing cannot be taken out to pay debts or for common everyday purchases.
In order to clarify this, we will now look at the most common types of financing available on the market.
Housing finance
THE housing finance It is the most common type on the market, and as we have already seen, it is used to purchase properties.
To contract the property in question, it must have specific characteristics, such as market value, square footage, etc.
Vehicle financing
THE vehicle financing, as the name suggests, is used to purchase vehicles.
This way, you can finance:
- Cars;
- Motorcycles;
- Utility vehicles;
- Trucks;
- Minibus;
- Between others.
Vehicle financing is not that difficult to obtain, and the applicant's income is the main criterion.
Student financing
Student financing aims to help students who wish to pursue higher education.
In this case, the financing covers the cost of the monthly fees, so that the student can pay in installments.
This is a good alternative for those who don't have enough money to pay the tuition fees before graduating.
The most common type is FIES, which is a federal government program.
However, some banks have independent student financing proposals.
It is worth mentioning that in addition to these types, there are other types of financing, such as: purchase of equipment, consortium, among others.
Therefore, if you want to purchase a high-value asset on credit, consult your bank to find out about the possibilities.
This is because you already know what financing is, you just need to know if it applies to all types of installment purchases, and this can be checked with the bank!
How do financing interest rates work?
Now that you understand what financing is and what types exist, we can talk about important details.
And, we know that interest certainly represents a topic that deserves attention.
After all, many say that this option is not a good idea because of the interest, but is that true?
The first thing we need to understand is that in the financial market, interest rates follow the term.
This means that the longer the term of a contract, the more interest will be applied.
So, there are a few points you should consider when evaluating interest, which are the amount and the term.
This is because the interest rate is pre-defined, in the case of the house, it is around 8% per year.
But, 8% on R$ 100,000.00 is a very different value from 8% on R$ 400,000.00.
Therefore, the value is very important in determining the interest that will be paid.
Furthermore, the longer the term, the more interest is applied to the contract, as interest is calculated annually.
Therefore, 360-installment contracts (30 years) have much more interest than 120-installment contracts (10 years).
Therefore, for those who want to avoid interest, it is worth betting on smaller amounts, associated with fewer installments.
It is worth mentioning that there are ways to reduce this interest throughout the contract through amortization.
Therefore, consult your manager if you notice that your contract has a lot of interest.
Financing or renting: which is the best option?
Throughout the material, you understood what financing is, in which cases it is used and how the interest rates of this modality work.
With that, all that’s left is to talk about the famous controversy: financing vs. renting.
This is because we often see experts defending the idea that renting is more worthwhile.
In general, they claim that the interest paid, if converted into investment, would generate a good amount of equity.
And, in fact, this view is not incorrect, since especially in the housing sector, interest rates are high.
However, it is important to highlight some points, namely:
- When renting, the property is not yours, and never will be, while when financing, you are paying for something that is yours.
- There is no point in not taking out financing with investment in mind if you are not actually going to invest.
This second point is very relevant, as many people fall for the idea that "interest can be converted into investment".
But they never invest, and after a while they realize that they don't have the investment, nor their own property.
Furthermore, we must consider that owning a property is an asset, so when you finance it you will be acquiring an asset.
However, this information only serves as a warning, as there is no right answer.
Therefore, it is worth evaluating your situation individually in order to choose the path to follow.
Finally, now that you know what financing is, it’s easier to decide whether this is the ideal option for you!
