How banks Charge 17% interest after Saying 10 Percent?
If you are planning to take a loan, either to buy a property or start a business, you need to read this article before going to apply. This is how the banks charge 17% interest rates after saying they provided you a loan at 10%. Even though the banks are continuing to charge high interest rates, most people are unaware of the bank’s sneaky little tricks.
Many student loan borrowers have wondered how banks charge 17% interest after saying 10%? This article explains the practice.
A Flat interest rate is calculated on the full loan amount throughout its tenure. It does not take
into account that the principal amount is gradually reduced by the monthly EMIs.
rate that is calculated on the outstanding loan amount every month is known as the Reducing
Balance interest rate.
If you take a Loan of 5 Lakhs, @10% Flat Rate for a Period of 5 years. Then you would pay EMI
of rs. 12,500 for 5 Years.
This EMI of rs. 12,500 converts to a Reducing Balance Interest Rate of 17.27% for the same
It does not make sense to keep paying the same EMI through the entire tenure of the Loan even though the loan amount keeps reducing.