Glossary
Reducing-Balance Interest
With reducing-balance interest, each month's interest is calculated on the principal still outstanding. As you repay, the balance falls and so does the interest. Home loans, most personal loans and bank loans work this way. For the same quoted rate, it costs far less than a flat rate, which charges
Related terms: Flat Interest Rate, Amortisation, EMI (Equated Monthly Instalment).
Published 12 Nov 2026
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