What is flat interst rate;- Flat interest rate is the rate of interest on which a fixed percentage of the interest charged on the total loan.You pay E.M.I every month but still you pay the interest on the whole loan amount
Means:- You are paying interest on the loan which you have already paid
In Reducing / Diminishing Balance Rate method, interest is calculated every month on the outstanding loan balance as reduced by the principal repayment every month. EMI payment every month contains interest payable for the outstanding loan amount for the month plus principal repayment. On every EMI payment, outstanding loan amount reduces by the amount of principal repayment. Thus interest for next month is calculated only on the outstanding loan amount as reduced by the principal repayment this month.
Means:- You have paying the interest on loan which you have borrowed
For example, if instead of 10% p.a. flat rate (in the above example), interest is charged at 10% p.a. reducing balance rate, EMI amount would be Rs 2,124.70 (please see earlier post on EMI Calculator). You would pay Rs 833.33 as interest in the first month and Rs 1,291.37 (2,124.70 – 833.33) would be Principal Repayment. For next month interest will be charged only on reduced principal, i.e. 100,000 less 1,291.37 = 98,708.63. Interest for second month would be Rs 822.57 (98,708.63 * 10% / 12) and principal repayment would be Rs 1,302.13 (2,124.70 – 822.57). Thus over the tenure of the loan, you would end up paying Rs 127,482 (2,124.70 * 12
to download calculator to show flat interest rate vs. dimnishing interest rate go to
