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What is Flat interest rate and Reducing Balance interest rate?

April 26, 2017Balance flat Interest rate reducing

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What is Flat interest rate and Reducing Balance interest rate?

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Suppose you have taken a loan of Rs.10 lac at 5% interest. You repay Rs.50,000 in the first installment. If the 5% interest continues to be applicable on Rs.10 lac after your first repayment, you are paying a Flat Interest Rate. But, if 5% interest is applicable now on Rs.9.50 lac, you are paying a Reduced Balance Interest Rate.