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Flat Interest Rate Vs Reducing Balance Interest Rate Calculator Cashkumar

This document compares and contrasts flat interest rates versus reducing balance interest rates on personal loans. It provides an example showing that reducing balance rates result in lower total interest paid and EMIs over the life of the loan compared to flat rates, where interest is calculated on the original principal for the full term. The document also shares a story of a customer who avoided a high-cost flat rate loan after learning about the differences between rates from the company.

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Satvant Singh Sarwara
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138 views

Flat Interest Rate Vs Reducing Balance Interest Rate Calculator Cashkumar

This document compares and contrasts flat interest rates versus reducing balance interest rates on personal loans. It provides an example showing that reducing balance rates result in lower total interest paid and EMIs over the life of the loan compared to flat rates, where interest is calculated on the original principal for the full term. The document also shares a story of a customer who avoided a high-cost flat rate loan after learning about the differences between rates from the company.

Uploaded by

Satvant Singh Sarwara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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  BORROWER SIGN IN LENDER SIGN IN

Flat Interest
  
Rate vs
Reducing Balance
Interest Rate Calculator
Compare and Convert Flat Interest Rate to Reducing Balance
Interest Rate and know the difference in EMI payments and
savings on your loans

Loan Amount Flat Rate (%)


4000000 8
The Loan Amount Annual Rate

Loan Tenure
5 Reducing Rate (%)
12
Years
Annual Rate

Months

Repayment Period

FLAT INTEREST RATE TO REDUCING BALANCE


RATE

Flat Interest Reducing Balance

8% 14.13%

EMI

 93,333

Total Interest

 1600000.00

Total Payment

 5600000

Total Savings
You will pay  261320 more

REDUCING BALANCE RATE TO FLAT INTEREST


RATE

Reducing Balance Flat Interest

12% 6.69%

EMI

 88,978

Total Interest

 1338680.00

Total Payment

 53,38,680

Total Savings

You will pay  2,61,320 less

Home  Personal Loan  Flat vs Reducing Balance

Different Interest Rates of Personal Loan


Interest is a portion of the loan amount over and above
the principal amount which is repaid to the lender.
Personal loan interest rate also works in a similar way for
various banks and NBFCs. Interest rate is usually
depicted as a percentage of the loan which is calculated
annually also known as Annual Percentage Rate (APR).
Each EMI repayment has a portion which goes towards
the principal amount and the quantity which goes
towards the personal loan interest. Every best personal
loan interest rate deal will have higher interest portions in
the initial EMIs which reduce as the EMIs progress. On
the other hand, the EMI adjusted against the principal
amount is lower at the start of EMI repayment and
increases as the tenure progresses. There are different
ways in which interest rates are calculated and you can
get lowest interest rate for personal loan based on the
method.

The first method is based on whether the interest is


calculated on the initial principal or on the balance
outstanding principal. The difference between reducing
balance rate of interest and flat rate of interest is shared
below,

Reducing or Diminishing Rate of Interest


In this case the personal loan interest rate is calculated
on principal amount outstanding at the end of a specific
period. As detailed above, with every EMI paid there is a
certain portion that is adjusted against the principal and
the balance goes towards interest. While calculating the
interest, the next calculation is on the principal balance
outstanding and not the initial principal amount. To
understand this better let us look at the example below,

Let us assume you have a loan amount of Rs. 5,00,000


with an interest rate of 15% which needs to be repaid in
5 years. The EMI in this case would be Rs. 11,895/- per
month. In the 1st year, you pay a total EMI of Rs.
1,42,740 of which Rs. 72,596/- goes for interest and the
balance Rs. 70,144/- goes towards interest. Now the
interest rate is calculated at 15% only on the balance
principal amount i.e. Rs. 4,37,404/- . Using this method if
you have the ability to pay larger amounts as part
payment, you will reduce you interest paid. The lowest
interest rate for personal loan by way of EMIs are
possible to obtain through this method.

Flat Rate of Interest


In this case the personal loan interest rate is calculated
on the initial principal amount without accounting for the
principal repaid. This method of interest calculation
results in a higher EMI. This can be understood better
with the example below,

Let us assume you take a Rs. 1,00,000 loan at 10%


interest rate. The interest component for every year
would be 10,000/-. So in case you would like to repay the
loan in 3 years, the total of the principal amount and the
interest rate would be Rs 1,00,000/- + Rs, 30,000/- i.e. Rs
1,30,000/- This will be divide by 3 years i.e. a total Rs
1,30,000/- divided by 36 months i.e. Rs. 3612 per year.
The same in case of a reducing balance approach would
be would be Rs. 3227/-. This the best personal loan
interest rate you can look for in the case of some private
lenders for a quick loan.

Flat and Reducing Balance Interest Rate


Experiences
Here are some stories of our customers with insights
to help you make better financial decisions,

Understanding Interest rates helped a Neelam


save money on her personal loan!
At Cashkumar we have always strived to make financial
sense for people and always give good advice first. Lot of
times people think a business is there just to make a
quick buck. The general attitude is that loan agents just
want to push through your loan without consideration to
your well-being. While this was the case some time back,
loan aggregation platforms like Cashkumar are bringing
about a change by undertaking a customer first approach.
This was proven again in a case we recently handled
where a customer got good advice and clarity on financial
workings.

Neelam is a customer from Kolkata who was in need of a


personal loan to meet some home related requirements.
She had been recommended to an agent with whom she
wanted to get her loan processed. Just to check again,
Neelam decided to go online and leave a request at our
site. The profile was studied by our customer service
representatives and we found out that Neelam was
working for a category C company and received a salary
of about 28K a month. Based on our algorithm we found
out that she was eligible for a loan of about 2 lakh from a
noted bank at an interest rate of 16%. We conveyed the
same to Neelam who was not impressed. She told us that
the agent was getting her a personal loan for an interest
rate of 12%.

Our customer service representative was surprised as


personal loans are not given at such a low rate for her
profile. But she soon realized that Neelam was being
given a flat rate. Our rep instantly asked Neelam to not
sign any documents for the loan without figuring out the
EMI first. She explained the difference to Neelam and
quickly calculated the EMI for her based on a 16% on
reducing balance and 12% flat on the same amount.
Obviously Neelam was shocked to find this fact and
assured us that she will not take the loan now without
being aware of all terms. Our rep was happy to help her
make a sensible choice.

Neelam called us back after 3 days and said that she had
refused the loan which was being arranged by her agent.
She had expressly asked them for the terms and found
out that the 12% flat interest rate and the EMI was way
too high. She thanked our rep for deducing this and
helping educate her unless which she would have taken
a high cost loan. She saw the merit in the loan offer we
had found for her and decided to take it. A small
suspicion and lack of information might have cost Neelam
a whole lot of money. Thankfully we were there at the
right time to help her.

Borrow Quick. Lend Smart

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