Reducing Interest Rate or Flat Interest Rate, which is better?

reducing interest rate

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:

  1. Reducing Balance Interest Rate
  2. Flat Interest Rate

Reducing Interest Rate:

In the Reducing Interest Rate scenario, the interest rate on the loan amount keeps on reducing i.e. the next EMI is calculated on the remaining principal amount which gets reduced daily, monthly, quarterly, or annually.

Flat Interest Rates:

This 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 Interest rates as the Flat Interest Rate calculation comes out to be more expensive.


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