Can someone tell me the difference between flat and reducing interest

Banking Money Loans dubai finance 3800 times2 answers1 follower
Nisha Patel 371 Rep. Nisha Patel edited question

This may be obvious but i have absolutely no idea! Im being given the reducing interest by my bank but is that optional? Can I opt for flat rate? Is there a difference? Not sure if it differs in Dubai compared to other cities?



Jon Richards 917 Rep. elliemartin1 edited answer

Getting the answer to this one straight from the yallacompare blog as they explain it best! :

Reducing rate

Reducing rate is when the interest rate of the loan decreases as you pay each monthly instalment. So basically, the interest for the coming month would be calculated based on the updated unpaid loan amount. For example, if you take loan of AED 200,00 for five years with a reducing rate of interest of 5%, then the amount you pay will be reduced each year…because the total loan amount will have been reduced.

Calculating the difference

For the reducing rate, divide it by 1.81 to get an estimated equivalent of the flat rate so you can be able to compare which rate is less expensive.

Read the full article on the difference between flat and reducing interest

When you compare personal loans on yallacompare you can switch between flat and reducing interest rates to help you compare the rates to those given to you by the bank representative

    Nisha Patel 371 Rep. Nisha Patel answered

    Great! Thank you Jon.

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