What are the different types of interest rates available?
Interest rates are quoted either as fixed flat rates or reducing balance rates. In the flat rate method of interest calculation, the outstanding loan amount is never reduced during the entire tenure of the loan even though you make payments monthly. In the case of reducing balance interest rates the EMI is calculated on the basis of daily, monthly, quarterly or annual rests. A ‘rest’ indicates the time frame in which the bank will recalculate the EMI based on the amount of loan paid back and the frequency of any compounding interest rate. Suppose you have a loan with an annual ‘rest’ then, though you pay a monthly installment, your benefit kicks in only at year end, here the bank gets to benefit. A monthly ‘rest’ will recognise the reduction in the loan amount on a monthly basis, a quarterly rest does it every quarter while a daily ‘rest’ will do it each day. The more closely the rest matches the frequency of your payments, the lower the total interest paid as the total outstanding loa
Interest rates are quoted either as fixed flat rates or reducing balance rates.In the flat rate method of interest calculation, the outstanding loan amount is never reduced during the entire tenure of the loan even though you make payments monthly. In the case of reducing balance interest rates the EMI is calculated on the basis of daily, monthly, quarterly or annual rests.A ‘rest’ indicates the time frame in which the bank will recalculate the EMI based on the amount of loan paid back and the frequency of any compounding interest rate. Suppose you have a loan with an annual ‘rest’ then, though you pay a monthly installment, your benefit kicks in only at year end, here the bank gets to benefit. A monthly ‘rest’ will recognise the reduction in the loan amount on a monthly basis, a quarterly rest does it every quarter while a daily ‘rest’ will do it each day. The more closely the rest matches the frequency of your payments, the lower the total interest paid as the total outstanding loan
