The Price table in payslip language

Early on, most of the instalment is interest. Later, most of it is principal. The payment stays still; the mix changes. That is why watching only the monthly figure hides the cost of stretching the term.

The Price table computes the fixed instalment as PMT = PV × i ÷ (1 − (1 + i)^−n), where PV is the amount financed, i is the monthly rate and n is the number of instalments. Each month interest accrues on the outstanding balance; what is left of the instalment repays principal. As the balance falls, the interest share shrinks and the principal share grows.

For R$10,000.00 at 2% a month, the term changes the cost a lot. Over 12 instalments: R$945.60 a month, R$11,347.20 in total and R$1,347.20 of interest. Over 24: R$528.71, R$12,689.04 in total and R$2,689.04 of interest. Over 36: R$392.33, R$14,123.88 in total and R$4,123.88 of interest. Over 48: R$326.02, R$15,648.96 in total and R$5,648.96 of interest.

In the 36-month contract, the first R$392.33 instalment holds R$200.00 of interest (2% of R$10,000) and only R$192.33 of principal; the balance falls to R$9,807.67. In the second, interest is R$196.15 and principal R$196.18.

Thinking a fixed instalment means fixed interest: the payment does not change, but its mix changes every month. Thinking a longer term is cheaper because the instalment fits your budget: in the example, going from 12 to 48 months cuts the instalment by more than 65% but multiplies interest by more than four.

Mixing up monthly and annual rates is also common: 2% a month equals 26.82% a year. Finally, remember the Consumer Defence Code (article 52, paragraph 2) guarantees early settlement, in whole or part, with a proportional reduction of interest.

• Consumer Defence Code, article 52 (Planalto, Portuguese)