Let us discuss interest Flat Rate and Reducing Rate in Banking. Of late, there are many banking and financial firms that deal with providing different types of loans to meet the overall requirements of the customers. The loans can be home loans, personal loans, vehicle loans, educational loans, and even gold loans. The process of applying for these loans is different as it includes lots of processes that need to be handled carefully. If you ever visited a bank for getting a loan, then you would be aware of the interest rate which you need to give after taking a loan from the bank. Here you would come to know about the interest flat rates and reducing rates in banking so that it will help you in the future.
Flat Interest rate
A flat Interest rate means an interest rate will be calculated on the full amount of the loan you are going to take from the bank. If you are taking a 2 lakh, loan, then interest will be charged on the full amount which is 2 lakh and you need to pay interest after that. It would be better for you to understand that it does not consider monthly EMIs which can reduce the principal amount. In simple words, the effective interest rate will always be higher than the nominal flat rate at the starting. A flat interest rate always charges you more as the interest rate will be higher throughout the loan tenure. It is not much popular among the borrowers because if you are paying the loan amount regularly without any misses, then also the interest rate will not go down for sure. The flat interest rate will range from 1.8 to 1.9 times more when it gets compared to other interest rates.
Reducing Rate
Reducing Rate is completely different from interest flat rate which means an interest rate will be calculated monthly basis on the outstanding loan amount. The EMI will include interest payable and principal repayment as well. If you are paying every EMI payment, then the outstanding amount will get decreased. After this, interest for the next month will be calculated on the outstanding loan amount. In short, words, reducing rates in Banking is much more affordable and better than the flat rate method. It is popular among borrowers as it provides the flexibility to pay a certain portion of the loan without any issues.
At last, you need to understand that flat interest rates are lower than the reducing rate. Also, calculating a flat interest rate is much easier and faster as compared to reducing the balance rate. If you are planning to take a loan in the future, then you should be aware of the interest flat rate and reducing rate in Banking. It will help you in deciding where you should go by considering your overall requirements. Make sure you are comparing each and everything before proceeding further for taking a loan in the coming days! If you still have any doubt, you can share your comment here!
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