Difference Between Daily reducing Balance and Monthly reducing balance in Home Loans ?

POSTED BY Sudheer ON September 25, 2013 7:52 am COMMENTS (3)

Hi, When applying for Home Loans / personal loans, what is the difference between Daily reducing Balance and Monthly reducing balance ? Would this make a difference in EMI formula ? Please clarify.

3 replies on this article “Difference Between Daily reducing Balance and Monthly reducing balance in Home Loans ?”

  1. Giriyappa bannatti says:

    Ok, but, what about the total interest to be paid for 1 lac after completion of 1 year tenure. I mean in which method lowest amount of interest goes from the customer / borrower.??

  2. ashalanshu says:

    Dear Sudheer, the basic formula to calculate EMi ‘ll remain same but the Interest outgo ‘ll change in both cases.

    thanks

    Ashal

  3. Credexpert says:

    Dear Sudheer,

    In case of monthly reducing balance, the reduced principal is calculated after each EMI and then the interest would be reworked on the new outstanding balance (reduced balance). Unlike daily reducing balance, under which the repaid principal amount would be adjusted daily and the interest would be reworked based on the previous day’s outstanding balance.

    The EMI formula remains the same for both methods.

    Regards,
    Credexpert
    http://www.credexpert.in

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