When we are totally determined to request a financing we will have things to analyze before making the request, also details regarding the loan itself and also questions regarding the way to cancel the program, that is, the ways to pay. It is the moment where you have to take into account the amortization system that our operation is going to have and that is why today we want to stop talking and mention all the most important details that can not be left out and thus have the greatest clarity in our contracts.
What are loan repayments?
Before highlighting specific information on the different systems that exist in the financial market for the relevant amortization of a requested financing, whether in a public or private bank or in a loan house, it is fundamental to briefly say what the issue is about. An amortization is a process by means of which the installments of a requested credit are paid and in this way the obligation that the client has with the granting institution is extinguished month by month. It is relevant to say that in an amortization it is agreed how much you are going to pay every month as a fee and within it will be included everything that corresponds such as the capital, the fixed interest, the insurance that is charged for the operation, between many other things.
What are the amortization systems?
Having already explained the general characteristics that we consider to be fundamental in relation to amortization, we must now also say that there are different systems currently in the financial sector and the choice of one or the other will depend on different issues. It is fundamental to choose a good system mainly in those personal loans, for example, that are going to be requested in the long term, since during an extended time you will have to pay a certain fee. As for the proper names we say that the three best known systems are these:
What is the French system fee?
Currently in Argentina, financial institutions mainly opt for this system to grant their loans and then collect the fees from their clients. It is a well-known form of payment and amortization that has been in operation for many years and is widely accepted by those who borrow every day, whether personal, for vehicles or to buy a home. How does it work? An amount is granted and a certain number of installments are agreed to a term and they will be constant. At the beginning in this form the capital that is amortized is low but then it grows with the passage of the quotas, that means that more interest rates will be paid in comparison with what will be paid for the requested capital. Highlight that through this mode of payment the fees will always be the same, but at the end of the term you can see that the value of the fees can be reduced.
What is the German depreciation system?
This is another system that in the loan market we can find. Although today in the country is not one of the most common because entities do not offer it to collect their credits, it is usual for institutions to use it. The main feature of this form of canceling a loan will be that at the beginning of the installments will pay higher amounts and with the passage of time will decrease, that is, has a system of staggering in terms of the cost to pay month to month. In this case, unlike the system described above, a higher capital will be paid at the beginning in relation to interest.
What is the depreciation table?
A table we say that it is properly a table where you can see how they are going to be each of the payments that a customer will have to make when they are going to grant a certain loan. It has a series of components that are important to analyze and that are repeated in all the financing operations such as term, interest, amortization, amount of its quota and the capital that was lent to it. It is essential to indicate that when you request a loan it is going to be a legal obligation of the institution to indicate all these data and even deliver the corresponding table.
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Which amortization system is best suited to the French system or the German system?
Which system will suit you when you want to ask for a loan will depend on some conditions and issues. To be able to indicate which system is best, we think it is appropriate to mention what the benefits of each of the forms are. Then we will start with the case of the French System:
You will pay at the beginning of the payment a higher percentage of interest in terms of capital.
The fees will always be fixed, they will not increase in any way.
In comparison with the German system at the beginning the quotas will be without doubt that lower.
It has a greater facility to be able to access financing at present.
Recommended mainly for those who may want to cancel before the deadline.
On the other hand we have the German system which also has a number of advantages, but nowadays, due to the economic situation, there are more disadvantages that we can find in it. This is the most relevant:
When you go paying half of your fees you will have already amortized almost all the capital.
It will have more accessible quotas at the end of the term than at the beginning.
It is not the best option if you want to cancel before the end of the term the total amount financed.
As a conclusion to the analysis carried out today we are going to say that which system of these mentioned best will always depend on each particular client, according to income, amounts requested, deadlines, rates in the operation, among other issues. If a person thinks that with the passage of time he will have a stable income, surely the German system will be better, however, if he thinks he will earn more, the French will be more in agreement.