Question 1

What is reducing balance vs flat rate interest?

Accepted Answer

Reducing balance (used by most banks) calculates interest on the outstanding principal, which decreases each month. Flat rate calculates interest on the full original amount throughout — making it more expensive. Always check which method your lender uses.

Question 2

How does prepayment affect EMI?

Accepted Answer

Partial prepayment (paying extra principal) can either reduce EMI (keeping tenure constant) or reduce tenure (keeping EMI constant). Reducing tenure saves significantly more total interest.

Question 3

What does the amortization schedule show?

Accepted Answer

Each row shows: month number, EMI payment, how much goes to interest, how much reduces principal, and remaining outstanding balance. Early installments are mostly interest; later ones are mostly principal.

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