Reducing Interest Rate or Flat Interest Rate, which is better?
The Personal loans Interest Rates may vary between 15% to 25% depending on your income, profile and payment capability. There are generally 2 types of interest Rates offered by banks:
- Reducing Balance Interest Rate
- Flat Interest Rate
In the Reducing Interest Rate calculation method, the rate of interest on your loan keeps on reducing as it is always calculated on the remaining principle amount which gets reduced daily, monthly, quarterly or annually.
Flat Interest Rate calculation method on other side implies that your rate of interest remains constant and is calculated over the entire loan tenure. The unpaid loan amount is never reduced over the loan tenure.
It is always suggested to take a loan at reducing balance interest rates as the Flat rate calculation comes out to be more expensive.
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