Often the dream of home ownership or the first car may seem distant. The financial market, however, offers us a number of options to realize the dream more quickly, even without having the value for that particular good. The answer may be on a loan or financing.
It is important to understand the differences between loan and financing before you take on one of them.
Did you know that there are differences between both modes? We did a comparative so that you understand the particularities of each one and that you can choose the best option for your case.
The first thing to take into consideration is that both (loan or financing) are ways to request money from a financial institution. It could be a bank or a credit company, for example.
In exchange for money, these institutions charge interest on the amount ceded. The total amount, including interest, is then paid in monthly installments by the applicant until discharge.
For financial institutions this is advantageous. They profit from interest on the loan or financing. For those who ask for the money, it is the chance to shorten the time to acquire a dream, to pay off a debt and many other things.
It is a simple relationship, but it needs attention so that the parcels do not become a snowball.
The purpose of the loan or financing
One of the differences between the two modalities is in the purpose specification.
In the case of financing, the applicant must specify for which purpose the money will be used. It can be for the purchase of a property, land, car etc. This has to be clear when the financing is contracted.
Some institutions even work with closed packages for each type of good, depending on what you want to acquire. This can make it easier to choose between other options.
In the case of the loan, it is not necessary to provide information about the purpose. In this way, the deal with the financial institution is more tied to guarantees.
The request is made to the bank, for example, who will ask for more information about how the applicant intends to pay the installments, before the loan occurs. Loans tend to be less bureaucratic and it is possible to negotiate rates fairly. The problem is that the requester needs to show their guarantees very well.
Care of interest rates
In the view of the financial institution, the loan will always be considered a risk. A sum of factors can constitute the guarantee of payment of who requests the loan. They can be considered for this: income, goods on behalf of the applicant and other factors.
In the case of financing, the contract is simpler as regards the guarantee. As the purpose is specific, the asset itself becomes the guarantee that the financing company needs.
Thus, for the institution, the financing is considered low risk. On the other hand, the amount of documentation that the applicant must submit for funding may be greater.
The risk issue directly influences the interest rate. When closing the contract, observe the total amount to be paid and separate the amount requested from accrued interest in the period. Always evaluate if you are not paying a very high amount in the end. If this occurs, negotiate directly with the financial institution. Also evaluate other financial institutions. Knowing the value of various locations helps in negotiating conditions.
Also pay attention to possible adjustments of plot. Note in the contract whether the installments are fixed or may change over the years. Financing, for example, tends to have longer lead times (for example, 30 or 40 months). Even with the lowest interest rates at the beginning, it can change over time.
One tip is to strive for the monthly installment not to exceed 30% of your salary. Otherwise, discharging the funding may become more difficult.
Another possibility is to try to anticipate the latest installments whenever possible. In this way, the interest rate tends to decrease as well. Before you do this, however, note whether this option is described in contract.
Assessing the advantages and disadvantages of each of them
If you have not yet understood what is best for your case, loan or financing, let’s now talk a bit more about the advantages of each.
The loans have an advantage over the financing when the interested party wants to acquire several items with the amount that he needs.
Let’s say you want to set up a business and you need some machines for the business to start rolling. The loan is more interesting in this case because it does not need to inform the purpose for the bank or credit company. But remember that the interest rate should always be accommodated within what you will have available to pay off the installments.
Very careful. In some cases, the assets acquired may also be entered as collateral for the loans. This is not an exclusivity of funding.
Financing, in turn, is best indicated when you plan to acquire a specific asset. This objectivity generally comforts the financial institution, which knows where the money will be applied and, therefore, tends to soften interest rates.
If you have this mechanism in mind, it will also be easier to negotiate the hiring of each mode. Also be aware of laws, such as the Consumer Law, not to be subjected to abusive fees.
Respect the established contract
Many people forget that the modalities cited in this post are two forms of personal indebtedness. We therefore reinforce the need to carefully examine all the clauses of the contract and to see if the installments will fit into your pocket before taking over the debt.
Avoid, for example, borrowing more than one loan or financing at a time. If this is not possible, keep in mind that you will need to be organized enough to fulfill the different obligations.
One of the things that can be bad for those who hire these services is the delay in paying the installments. Many institutions that have lower interest rates, end up establishing in the contract other forms of collection. Interest may increase too much, and in some cases, even fines may arise.
Pay close attention to the payment deadlines and seek, whenever possible, the amount to pay the installments in advance. Have at the tip of the pencil the total amount borrowed and the amount of interest not to be confused.