Reducing balance rate

Nature of calculation

The reducing balance rate of interest takes into account the amount that is repaid against the personal loan while making the interest calculation.

Eligible amount

The eligible amount goes on changing as the loan is repaid over a period of time. This is the reason why you need to constantly calculate the amount that remains on the loan.

Regular operation

The operation of the loan is regular in all other ways as there is an EMI to be paid for the loan and at the same time this consists of both the principal and the interest to be repaid.

Benefit

The advantage of this method of interest calculation is that you get the benefit of the amount that you are repaying at regular time intervals. This period of readjusting the principal for the amount repaid is fixed by the loan agreement

Complicated

The only disadvantage that many people find in this kind of calculation is that the exact amount outstanding often becomes difficult to know because of the changing nature of the situation over the entire life of the loan.