Flat Interest Vs Reducing Interest Rate Calculator
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What is Reducing Rate of Interest?
The payable rate applied to loans on financial products is termed reducing interest rate. In other words, it is commonly known as reducing balance rate or diminishing balance interest.
At the end of a certain period, the principal amount owned determines the personal loan interest rate. A part of each EMI is levied to the original loan amount, while the pending balance is applicable to the interest. During computations, the interest rate is applied to the outstanding balance, which decreases overtime as the payment is made.
Reducing rate of interest calculator seamlessly calculates the interest on a financial product or a loan. It is a utility tool that computes interest rates without compounding. It has a formula box where you must input the principal amount, interest rate, and tenure in years, months, or days. Once done, the diminishing interest calculator displays accurate results in seconds.
What is a Flat Interest Rate?
A flat interest rate refers to the lending rate that remains unchanged throughout the loan tenure. In this case, the interest rate is computed for the entire amount at the start of the loan tenure. The fiscal entities maintain a record of the repayment schedule and identify the EMIs to be paid by the borrower. It facilitates financial planning beforehand and ensures total liability is fixed for a borrower. Thus, these flat interests are usually valued higher than the reducing interest rates.
Formula to Calculate Reducing Rate of Interest
Reducing rates of interest are normally applied for car loans, mortgages, and personal loans. Here’s a formula to calculate it:
Consider the notations:
P = Original loan amount or principal amount you have borrowed
r = Annual interest rate
n = Count of compounding periods per year
t = Number of years
Use the below formula to compute the reducing interest rate for each compounding period:
Reducing interest rate for the period = (p x r / n)
How to Calculate Flat Interest Rate?
Let’s check out the notation for calculating flat rate of interest:
P = Principal Amount of the money you borrowed
I = Annual Interest Rate
t = tenure of the loan in years
Flat Interest Rate= (p x i x t / 100)
Flat Interest Vs Reducing Interest Rate: Why Are They Different?
| Category | Flat Interest rate | Reducing Interest Rate |
| Form of Computations | The flat interest rate is calculated on the initial loan amount throughout the tenure. | The interest rate is levied under the reducing interest rate and is based on principal amount. |
| Principal Reductions | There is no change in interest amount with the repayments of principal | With every principal repayment, the interest decreases. |
| Total Interest | Since interest is on full loan amount, the total interest paid is higher | With the decrease in the interest, the total interest is lower as compared to flat interest |
| Monthly EMI | It is same throughout the tenure | It varies with decrease in interest portion |
| Simplicity | It is much easier to compute flat interest rate | It is a bit difficult to compute reducing interest rate |
How Does Reducing Interest Rate Calculator Work?
Simplify loan planning with a reducing loan EMI calculator that generates results in seconds. Computing reducing and flat interest rates is just a matter of a few clicks with these calculators. Here’s how the Reducing Loan calculator works.
- 1. Enter the Requested Information
In the textbox, input details such as the original loan amount, annual interest rate, compounding period, and number of years into the system. - 2. Periodic Interest Calculations
The reducing loan EMI calculator easily calculates the interest for each payment period. Considering reducing interest, the calculations contemplate the pending balance once the previous payment is done. - 3. Repayment Schedule
The calculator presents the payment breakdown for each period on the screen. It caters to the original loan amount, interests, and pending balance for each period. - 4. Add-on Features
A few reducing rate EMI calculators offer advanced features like the ability to edit the interest rate changes over time or include extra payments. These features facilitate more flexibility and accuracy for real-world scenarios. - 5. Iterative Calculations
The calculator performs recurring calculations for every payment period until the loan term ends. The balance and interest both get updated for every modification.
Decode Your Loan Details Right Away!
Our Reducing Interest Rate Calculator is your go-to solution to compute flat and reducing rates in seconds. Just a few details and clicks, the results are on your screen-it’s that easy! So get started with the Munim Reducing Interest EMI Calculator Now!
- Select the Loan Amount
Input the principal/ original loan amount you need to pay. - Add Rate of Interest
Select the interest rate applied to your amount. - Loan Tenure
Choose the loan tenure for paying debt.
Once all the details are entered, our reducing balance loan calculator computes and displays the results for you. It consists of Monthly EMI, total interest, total amount, and reducing interest.
Our reducing rate calculator is a smart solution for instant results!
Why Should You Choose Our Reducing Interest Rate Calculator?
- It is simple to use an online calculator for computing flat and reducing interests.
- Access Munim reducing rate of interest calculator from any corner of the world with an active internet connection at any time.
- Save time and effort invested in manual computations.
- Just a few clicks, and your results are ready.
USPs of Our Reducing Interest Rate Calculator
- Intuitive Design
- Customer Support
- Security
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Frequently Asked Questions (FAQ)
What is the principal amount?
The principal amount is the original loan amount you have taken out or would like to take out. It is crucial for flat and reducing interest rate calculations.
