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Amortization allows you to gradually reduce financing installments, pay less interest and pay off the car more quickly with financial planning.financial planning.
Paying off loan installments can be one of the most effective ways to save money on interest. Many consumers don't know this, but by paying off the last installments early, it is possible to get a good discount, since these installments accumulate the highest charges.
The influencer Tiago Siqueira, from the Pipoco Investidor channel, published a video that caught the attention of those who have vehicle financing.
He shows how much he could save by paying off his car loan in advance by R$10. According to him, the savings would be more than R$8 in interest alone.
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Fixed installments and savings when paying in advance
Tiago reveals that he and his wife financed a 2018 Creta in 4 years. The installments are fixed at the amount of R$1.694,61.
When accessing the bank's app, it shows how you can pay future installments in advance and, therefore, get good discounts.
During the recording, he simulates the anticipation of several installments. The influencer explains that he is always selecting the last installments of the contract, as they are the ones that guarantee the biggest discounts.
Upon reaching the value of R$9.944,95, Tiago manages to include 11 installments in the advance payment.
Discount of R$ 8.696,86
With this value, it shows how much you would stop paying in interest: R$8.696,86. The savings are striking, considering that the value of the original installments would total much more than the R$10 used to advance.
Paying off installments in advance can be an efficient strategy for those who have money available and want to reduce interest costs. Generally, the process is simple, done directly in the application with just a few clicks.
Step by step in the app
Most banks allow you to pay off installments quickly and conveniently, allowing you to select which installments will be paid off before the due date.
When you make your selection, the system will show you the total amount to be paid with a discount. Ideally, you should always choose to pay the last installments in advance, as they are the ones that accumulate the most interest and, therefore, generate the greatest savings when paid in advance.
After completing the selection, the application generates a bill with the total amount of the advance payment. By paying this amount, the 11 installments would be paid off and the outstanding balance would decrease considerably.
What is amortization and what are its advantages when financing a car
Amortization is the process of gradually paying off a debt, such as a mortgage, through monthly installments. Each installment includes two main parts: one that reduces the total amount of the debt (the principal) and another that pays the interest charged on the outstanding balance.
When financing a car, amortizing means gradually paying off the amount borrowed to purchase the vehicle.
How amortization works
When financing a car, the bank or financial institution lends an amount to the buyer. This amount will be returned in installments, with interest.
With each monthly payment, part of the amount goes towards interest and the rest towards amortization — that is, towards reducing the principal debt. Over time, the outstanding balance decreases until the financing is paid off.
There are different amortization systems, the two main ones being:
- Price System: fixed installments. At the beginning, you pay more interest and less amortization; over time, the interest falls and the amortization increases.
- SAC System (Constant Amortization System): the amortization is always the same amount, but the interest decreases. This means that the installments start higher and gradually become smaller.
Advantages of amortization when financing a car
Gradual debt reduction: Amortization allows the debt value to decrease month by month. This gives the buyer predictability and makes it easier to control finances.
Interest savings with early repayment: By paying off installments early — especially the last ones, which have the highest interest — the buyer can get significant discounts. This is because future interest is no longer charged on the amortized amount.
Lower outstanding balance over time: Even though the installments are fixed (in the Price system), the part related to the debt increases, and the interest decreases. This means that, over time, you are paying more to pay off the car and less in interest.
Faster vehicle release: By amortizing more quickly, the car can be paid off before the scheduled date, which frees the asset from possible restrictions (such as fiduciary alienation).
Possibility of renegotiation with better conditions: With less debt, the consumer can negotiate better rates or conditions with the bank, if they want to pay off or refinance.
In short, understanding amortization is essential for anyone who wants to take out a conscious loan and, if possible, take advantage of opportunities to pay less interest.
