Are you looking for a loan, but you still don’t know how they work? Are you confused with the terminology, the interest rates and you have no idea what the CAT is? Here you can know everything you need before requesting a loan.
Having a credit card available or having a loan does not mean that you have more money. Remember that whatever amount you have, you must return it with the corresponding interest.
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The above leads us to the fact that you should only ask for amounts that you are sure you can return without affecting the rest of your monthly expenses.
If you have several credits at the same time, it is very easy to lose track of the monthly payments that you must pay and they will become a problem when you have to cover all the amounts and you run out of liquidity for the rest of the month.
You must also take into account what would happen if for some contingency you cannot pay it for a month, how you are going to solve it, since that will cause interest to increase exponentially.
It is a cost that the financial institution charges you for lending you money in a certain time and it is a percentage that is calculated based on the amount they gave you.
The interest rate can be fixed or variable, that is, it remains exactly the same throughout the life of the loan or it changes over time. For this change, the reference rate of Banco de México is normally used.
Now, there are two ways to charge interest on a loan, it can be through simple or compound interest.
In the first case, the interests are calculated considering only the initial capital that they loaned you and the percentage of the interest rate is added to that. Normally, in long-term loans, simple interest is usually charged.
On the other hand, compound interest is calculated considering the borrowed capital, plus interest from the previous period, so the amount increases considerably. This type of interest is what credit cards usually use.
It is the Total Annual Cost (CAT) and it is a measure that is used as a way to compare between different credits.
You can find it as a percentage that includes the costs, commissions and insurance that are charged on a credit annually.
There are two important moments in the case of credit cards. The first is the cut-off date, that is, when the banking institution makes a closing on what you have spent with the card and the payments you have made, on that amount it calculates the interest.
The second is the payment date. After the cut, the banks give a period of around 20 days so that you can make the corresponding payment or at least cover the minimum, if not, the entity charges for the delay, in addition to additional interest.
That is why you should never lose sight of these two dates. If you decide to pay off your card, it is best to do so before the cut-off date; while you should avoid paying after the payment date so as not to generate more interest.
As for other types of loans, such as personal or payroll , the payment dates work differently.
For the former, there is a payment date that you must always keep in mind or you could miss it and that carries surcharges in many cases.
Now you know much more about how loans work, if you are looking for a loan to meet some of your financial goals, our experts can help you. Come with us to receive the guidance you need.