Reducing Balance Loan Calculator in Excel

Allow me to tell you a story about ‘reducing balance loan calculation’.

Why I’m writing a blog post about it?

Because it helped me and my friend to see the reducing balance method in a perspective of cheap vs costly loans.

Reducing Balance Method of Loan Calculation - Fixed Vs Reducing
First, I’ll tell you the story.

Then we will dig deeper into the reducing balance method of loan calculation.

That will explain how reducing balance method makes loan cheaper. Read more about how to prepare for loan application.

THE STORY
One day my friend got a call from a bank.

He was told that the bank can offer personal loan @8.5% p.a. interest.

My friend was surprised. Why? Because normal personal-loan rate prevailing at that time was 14%+ per annum.

Hence my friend concluded that the call was spammy. [Read more about 5 Ways to Earn Higher Interest on FD’s]

But before he could disconnect the call, the bank personnel made two statements:

– Bank can offer loan @8.5% at ‘fixed interest rate‘.

– Bank can offer loan @14.88% at ‘reducing balance rate‘.

Reducing Balance Method of Loan Calculation - Fixed Vs Reducing Rates
Though these two statements made my friend even more confused, but he could say that at least the call is not spammy.

Anyways, he disconnected the call and reached me. Together we did some research. About what?

Why bank is offering such two distinct interest rates on the same loan?

Read more: https://getmoneyrich.com/reducing-bal...