Reducing Interest Rate or Flat Interest Rate, which is better?
The Personal loans Interest Rates may vary between 13% 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
Reducing Interest Rate:
In this type, the rate of interest on the loan amount keeps on reducing i.e. the next EMI is calculated on the remaining principle amount which gets reduced daily, monthly, quarterly or annually.
Flat Interest Rates:
Flat Interest Rate method calculates EMI keeping the rate of interest constant throughout 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 Interest Rate calculation comes out to be more expensive.
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