What Is Reducing Interest Rate?

Posted on Wednesday, December 18th, 2024 | By IndusInd Bank

Interest rates on a loan significantly impact the total cost of borrowing. Among the various types of interest rates, the reducing interest rate stands out. But what is the reducing interest rate? And how does it have the potential to save borrowers money over the loan tenure? This article aims to demystify the concept of a reducing interest rate, explain its benefits, and much more.

Understanding Reducing Interest Rate

A reducing interest rate, meaning a diminishing or declining balance interest rate, is a method of calculating interest where the interest is charged on the outstanding loan balance. As you repay the principal amount, the interest is recalculated on the reduced principal amount, leading to a gradual decrease in the total interest paid over the loan tenure.

Here’s a simplified illustration:

• Imagine you take a loan of ₹ 1,00,000 with a reducing interest rate of 10% per annum.
• In the first month, the interest is calculated on the entire loan amount (₹ 1,00,000).
• After your first repayment, the principal reduces.
• In the second month, the interest is calculated on the new, reduced principal amount, and this process continues throughout the loan tenure.

This method is in stark contrast with a flat interest rate, where the interest is calculated on the original principal amount for the entire duration of the loan, resulting in higher interest payments.

Benefits of a Reducing Interest Rate

Here are a few benefits you can look at:

1. Lower Interest Payments: Since the interest is calculated on the diminishing principal, the total interest paid over the loan tenure is significantly lower compared to a flat interest rate loan. -H3
2. Transparency: Borrowers can easily see how their repayments are reducing the principal and the interest component using a loan repayment schedule. Thus, offering clarity and peace of mind. -H3
3. Cost-Effective: Particularly for long-term loans, reducing interest rates prove to be more economical than flat interest rates. -H3

Introducing IndusInd Bank Personal Loans

IndusInd Bank offers Personal Loans tailored to meet various financial needs. Our personal loans come with competitive interest rates and flexible repayment options, making them an attractive choice for borrowers.

Features of IndusInd Bank Personal Loans

• Loan Amount: IndusInd Bank offers personal loans ranging from ₹30,000 to ₹50,00,000.
• Flexible Tenure: Borrowers can choose repayment tenures ranging from 1 to 7 years, allowing for manageable EMIs.
• Quick Disbursal: IndusInd Bank Personal Loan applications receive instant approvals followed by a swift disbursal.
• 100% Digital Application: The application process for IndusInd Bank Personal Loans is 100% digital, ensuring a hassle-free experience.
• No Collateral Required: IndusInd Bank Personal Loans do not require you to pledge any assets as collateral.

Choosing the Right Interest Rate

When opting for a personal loan, compare the total cost of borrowing under different interest rate methods. Here’s a quick comparison:

• Flat Interest Rate: The interest is calculated on the entire principal amount throughout the loan tenure, offering predictability in EMIs.
• Reducing Interest Rate: The interest is calculated on the outstanding principal, resulting in lower interest payments over time. This method can be more economical, especially for long-term loans.

Steps to Apply for an IndusInd Bank Personal Loan

Follow these steps to apply for an IndusInd Bank Personal Loan:

1. Input Your Details: Provide details like your mobile number, PAN card number, etc.
2. Best Offer for You: Based on your credibility, IndusInd Bank will provide you with offers tailored to your needs.
3. Complete Application: Fill out the online application form, complete your video-KYC, and set up your auto repayment mandate.
4. Get Money in the Account: Once your application is approved, you can sign the loan agreement digitally and the loan amount is disbursed to your account.

Remember to use the Personal Loan EMI calculator on IndusInd Bank’s website to determine the best loan deal that would suit you.

Also Read: Understanding Personal Loan Interest Rates

Conclusion

Understanding the nuances of interest rates can significantly impact your borrowing decisions. A reducing interest rate, with its method of calculating interest on the outstanding principal, can offer substantial savings over the loan tenure. Along with the interest calculation methodology, your credit history, your banking partner and the like can impact your personal loan experience.

IndusInd Bank’s Personal Loans are offered at competitive interest rates, along with many other features mentioned above. If you are looking for a personal loan that offers features like a flexible repayment tenure and 100% digital application, consider IndusInd Bank.

Apply now for an Instant Personal Loan with IndusInd Bank!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.