What Factors Are Needed to avail of a Flat Interest Rate? - Loan Trivia


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Monday 16 August 2021

What Factors Are Needed to avail of a Flat Interest Rate?


The financial market is offering several benefits on financial solutions like personal loans. One of these benefits is a flat interest rate on personal loans. It helps to reduce your liabilities effectively. 

You can avail of a flat interest rate loan with most lenders. Better to confirm the interest rate calculations with your lender before making a personal loan application. Because with a few lending institutions, you may find reducing interest rates. 

Flat Interest Rate

Flat interest rates remain fixed for the entire personal loan tenure. The installment amount is calculated at the beginning that helps borrowers to plan their debt repayments in advance. 

Flat interest rate calculation base formula: 

Interest Payable Per EMI: (Loan Amount * Loan period * Annual Interest) divided by Total EMIs

Reducing Interest Rate 

Reducing interest rate is based on the due amount of a loan. Interest payable varies in different months depending on the outstanding loan amount.

Reducing Interest Rate Calculation base formula: 

Interest Payable Per EMI: Due loan amount multiplied by the interest rate on each installment

Let us explain the difference between both interest rates. 

Reducing vs. Flat Interest Rate 

  1. Basis of Calculation  

The basis for reducing interest calculation is the outstanding loan amount, whereas the flat rate is based on the principal loan amount. 

  1. Effective Rate Equivalence 

An effective annual interest rate is the real interest rate. The reducing rate result is less effective rate equivalence as compared to the flat rate.

  1. Repayment Schedule and Management 

It is challenging to schedule your EMI payments and manage finances with a reducing interest rate as the amount is not fixed for each EMI. In contrast, you can handle your finances efficiently with a flat interest rate. 

After knowing the differences, you can find the best interest rate personal loan for you. With Bajaj Finserv, you can grab pre-approved offers for home loans, personal loans and credit cards. You can check offers for you by just entering basic personal details.

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