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Amortization Allows You to Gradually Reduce the Installments of the Financing, Pay Less Interest, and Settle the Car More Quickly with Financial Planning.
Paying off financing installments can be one of the most effective ways to save money on interest. Many consumers may not know, but by anticipating the payment of the last installments, it is possible to obtain a good discount, as these payments accumulate the highest charges.
The influencer Tiago Siqueira, from the Pipoco Investidor channel, published a video that caught the attention of those with vehicle financing.
He shows how much he could save by anticipating installments of his car financing with the amount of R$ 10 thousand. According to him, the savings would exceed R$ 8 thousand just in interest.
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Fixed Installments and Savings When Making Advance Payments
Tiago reveals that he and his wife financed a 2018 Creta over 4 years. The installments are fixed at the amount of R$ 1,694.61.
By accessing the bank’s app, he shows how it is possible to anticipate the payment of future installments and, with that, achieve 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 since they ensure the highest discounts.
Upon reaching the amount of R$ 9,944.95, Tiago is able to include 11 installments in the early payment.
Discount of R$ 8,696.86
With this amount, he shows how much he would stop paying in interest: R$ 8,696.86. The savings are striking, considering that the original installment amounts would total much more than the R$ 10 thousand used for anticipation.
Anticipating installments can be an efficient strategy for those with available funds who wish to reduce costs with interest. Generally, the process is simple, done directly in the app with a few clicks.
Step by Step in the App
Most banks allow the anticipation of installments quickly and practically, allowing you to select which installments will be paid off before the due date.
When making the selection, the system already shows the total amount to be paid with a discount. The ideal is to always choose to anticipate the last installments, as they accumulate the most interest and therefore generate the greatest savings when paid in advance.
After completing the selection, the app generates a boleto with the total amount of the anticipation. By paying this amount, the 11 installments would be settled, and the outstanding balance would decrease considerably.
What Is Amortization and What Are Its Advantages in Financing a Car
Amortization is the process of gradually paying off a debt, such as financing, through monthly installments. Each installment includes two main parts: one that reduces the total debt amount (the principal) and another that pays the interest charged on the outstanding balance.
In car financing, 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, a portion goes towards interest and another towards amortization — that is, to reduce the principal debt. Over time, the outstanding balance decreases until the financing is settled.
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, interest decreases and amortization increases.
- SAC System (Constant Amortization System): the amortization is always the same amount, but the interest decreases. This causes the installments to start higher and gradually become smaller.
Advantages of Amortization in Car Financing
Gradual Debt Reduction: Amortization allows the debt amount to decrease month by month. This provides predictability to the buyer and facilitates financial control.
Savings on Interest with Early Amortization: By anticipating installments — especially the last ones, which have more interest — the buyer can achieve significant discounts. This occurs because future interest stops being charged on the amortized amount.
Lower Outstanding Balance Over Time: Even if the installments are fixed (under the Price system), the portion related to the debt increases, and the interest decreases. This means that, over time, you are paying more towards the settlement of the car and less in interest.
Faster Release of the Vehicle: By amortizing more quickly, the car can be paid off before the expected deadline, which frees the asset from potential restrictions (such as fiduciary alienation).
Possibility of Renegotiation with Better Conditions: With the lower debt, the consumer can negotiate better rates or conditions with the bank if they want to settle or refinance.
In summary, understanding amortization is essential for anyone looking to make a conscious financing decision and, if possible, take advantage of opportunities to pay less interest.
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