A Personal Loan acts as a source of funds to meet multiple purposes. They are unsecured loans and have quick processing time. Factors such as tenure and terms of repayment play a significant role while opting for a Personal Loan. Of all elements, the interest rate offered is of prime importance. As the interest rate determines how much will the loan cost you.
Reducing and flat interest rates are the two types of interest rates for Personal Loan. Most borrowers who prefer fixed EMIs and simpler calculations opt for Flat interest rates.
In this article, lets us understand more about flat interest rates. This will help you weigh your options wisely before applying for a Personal Loan.
What are the types of interest rates applied on a Personal Loan?
Reducing Interest Rate:
Reducing Interest rate is calculated on the outstanding principal amount. So, unlike other calculations, the interest rate calculated in this methos is not on the total principal amount but instead the principal amount that is remaining after the repayment of every EMI. And hence, the interest rate applicable reduces as the repayment progresses.
Many borrowers prefer opting for reducing interest rate its flexibility in paying the EMIs.
The Reducing Interest rate is calculated using the following formula:
Flat Interest Rate:
In flat interest rate method, the interest rate here is calculated on the total principal amount. The method does not consider the repayment of the principal amount as the tenure progresses.
The interest rate and the payable amount for every month remains constant. Often, the flat interest rate is usually higher than the reducing interest rate. This is because, the principal amount considered does not diminish gradually on repayment.
The flat interest rate is calculated using the following formula:
Having said that flat interest rate also comes with a several advantages.
What are the benefits of opting for a flat interest rate?
Effective planning – Since the EMI every month remains constant; you can plan your monthly finances easily. This save you the trouble of calculating what the EMI will be every month and plan accordingly.
Simple Calculation – As the interest rate is fixed, you can calculate the flat interest rate on your Personal Loan with absolute ease. In fact, the flat interest rate EMI calculator has simplified that procedure of calculation. It only requires you to put in a set of the necessary information, and the calculator will provide accurate results instantly.
How to use the Flat Rate EMI calculator?
Flat EMI calculator is a useful online calculation tool that makes interest calculation for Personal Loans effortless. All you need to do is, enter the following the details in the calculator to know the interest payable:
Total loan amount
Tenure of repayment
Interest Rate
Once you have entered the above details, the flat interest calculator will display the following values:
An estimate of the total interest payable
The total repayment amount for the tenure of repayment specified by you
Optimize your Personal Loan repayment procedure by planning your finances beforehand. Know and understand the interest rate and repayment terms well before you apply for Personal Loan. It will help you manage your financial activities efficiently.
Click here to apply for a Personal Loan at HDFC Bank and take care of your finances hassle-free!
*Terms and conditions apply. Personal Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Banks requirement. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.