LOAN( MONTHLY REDUCING BALANCE METHOD)
Most of the people in their life time will take loan once or twice
to achieve their dream projects. such as purchasing own house
or some thing else.
One Couple has seen an advertisement "Loan @ 9% interest". The couple impressed by the percentage of loan which they are offering but with doubt. They went to their office and met with representative. He also narrated the same story. yes sir this is the only bank that we are providing loans at this lowest 9 % rate of interest to our customers. The couple suspected and recollected the matter what the representative said.
Representative explained like this
loan amount = Rs.25,000
loan period= 3 years
installment per month=Rs.882
Couple made calculations like this:
Interest for 3 years=Rs.6752
R=RATE OF INTEREST
based on the above calculations couple came to a
conclusion that the representative calculated
interest for the same principle through out the loan
but every month we have to pay principle+interest.
ultimately principal goes on reducing every month
Bank should calculate interest on new
principal every time. so that our total interest
will come down
now i think you understand that
what is Monthly reducing balance method
in this method interest be only calculated on new
principal every time after deducting the amount paid.
NEXT TIME WHEN YOU GO FOR LOAN JUST ASK FOR
MONTHLY REDUCING BALANCE METHOD.