Reduced vs Flat Rate Calculator
Instantly calculate your monthly payment and see what the total interest charges would be.
When you pay EMIs for a Loan, you pay some part of Principal and some part as Interest on your Loan. In Reducing Balance rate, the paid up EMI’s Principal portion is "reduced or subtracted" from the subsequent EMIs Interest calculation or in other words you pay interest on balance principal. Effectively, you pay lesser Interest as you keep paying more EMIs and hence the Total Interest on your loan amount is lesser in case of Reduce Rate Loans.
In this case, the Principal / Loan Amount that you took loan is always considered for calculating the Interest. Which means that even when you have paid say 9 yrs of EMI for a 10yrs Loan, the Interest is always calculated on the same Principal / Loan Amount. So, effectively you end up paying more total interest.
Hence, Reduced Rate is better than the Flat Rate as also evident from the Reduced vs Flat Rate Calculator above.
Fixed interest rate means that you will be repaying the loan in fixed equal installments for the agreed fixed term. Fixed rates are priced higher than floating rates, if future interest scenario is on a raising trend. If the difference is not much, depending on your preference and need, you can opt for floating or fixed rate. Flat interest rate means not fixed interest means an interest rate that is calculated on the full principal amount of the loan throughout its tenure without considering the monthly EMIs made, which gradually reduces the principal amount.
Floating/Reducing/Diminishing Interest Rate
Floating interest rate varies with the market scenario on interest. EMI can change depending upon change in the floating rate.It can be favourable if the rate falls and unfavourable if the rate increases. Any unpaid interest will be added to the principal attracting interest charge. After every EMI payment, the outstanding loan amount gets reduced. Therefore, the interest for the next month is calculated only on the outstanding loan amount.
Choosing between a fixed and floating interest rate can be difficult choice. It’s important that you consider both, weigh the pros and cons and then make a decision. The following are the factors to consider before choosing the interest rate while taking a loan.