Agência Brasil explains how interest rate is calculated
Interest is part of the financial daily life of most people, whether for those who borrow money or for those who invest. Knowing the types of interest rates can help you make decisions and make proper financial planning.
According to the Central Bank (BC), interest is like the price of the "rent" of money for a period of time, the remuneration paid to whoever lent the money or applied the resources. Banks and other financial institutions act as intermediaries between those who have money (saver or investor) and those who need money (borrowers or borrowers).
The investor's money invested in the financial institution will be lent to the borrower (debtor), who will pay the amount plus interest to the bank. The bank keeps a portion of the amount paid as remuneration and returns to the investor the amount plus interest, on the agreed date.
Thus, explains the BC, the borrower will return to the bank an amount greater than what he borrowed, and the saver will receive an amount greater than the amount invested.
How interest is calculated
The calculation is made by dividing the interest contracted by the capital borrowed or saved.
The BC cites as an example: if the interest charged on a loan of R$1,000 for a year is R$80, this means that the borrower paid an interest rate of 8% per year. The calculation is done as follows: interest/principal, that is, 80/1,000 = 8/100 per year = 8% per year.
In an investment of BRL 1,000 with an interest rate of 5% per year, the investor will receive BRL 5 for every BRL 100 invested (5/100) during one year, which, at the end of the period, will total BRL 1,050 .
simple interest rate
This fee is calculated on the initial capital, which is the amount borrowed or invested. There is no interest charge on interest accrued over time. For example, on a loan of $1,000, at a simple interest rate of 8% per annum, for a term of 2 years, the total interest will be $80 for the first year and $80 for the second year. At the end of the contract, the borrower will return the principal and simple interest for each year, that is, R$1,000+R$80+R$80=R$1,160.
compound interest rate
In this calculation, explains BC, for each period of the contract, daily, monthly, yearly, for example, there is a “new capital” for charging the contracted interest rate. This “new capital” is the sum of capital and interest charged in the previous period.
For example, on a $1,000 loan, compounding interest rate of 8% per annum, for a 2-year term, the total interest will be $80 in the first year. In the second year, the interest will be added to the principal (R$1,000 + R$80 = R$1,080), resulting in interest of R$86 (8% of R$1,080).
The interest for the first year (R$80) is added to the interest for the second year (R$86), totaling the amount of R$1,166 that must be returned at the end of the loan.
real interest rate
This is the nominal rate, discounted for inflation. It is an important rate for investors who are always looking for a return above inflation, that is, with a real gain.
For example, if a financial institution reports that the return on an investment is 10% (nominal interest) and inflation was 2%. With these data, a real interest rate of approximately 7.84% is arrived at.
The formula for this calculation is: (1.10/1.02-1)*100
Total Effective Cost
In addition to the interest rate, there are other costs involved in credit transactions. The Total Effective Cost (CET) was created so that the consumer can better compare the conditions of financing offered by financial institutions.
The BC emphasizes that the CET must be expressed as an annual percentage rate and incorporates all charges and expenses incurred in credit operations: interest rate, fees, taxes, insurance and other expenses.
The CET calculation sheet must specify, in addition to the value in reais of each component of the transaction flow, the respective percentages in relation to the total amount owed.
The CET calculation statement must be highlighted in the contract.
Simulation:
Amount financed: BRL 1,000.00
Interest rate: 12% per year or 0.95% per month
Operation term: 5 months
Monthly installment: BRL 205.73
Registration fee for starting a relationship: R$ 50.00
IOF: BRL 10.00
In this operation, the CET will be 43.93% per year or 3.08% per month. This percentage is higher than the interest rate of 12% per year.
Citizen Calculator
On BC 's website , there is a calculator that helps you do interest calculations. Access here .
Text translated using artificial intelligence.
