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  3. Monday, May 05 2014, 04:13 AM
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How is car loan interest rate calculated. Is it done basis simple interest rate or compounded interest rate. Also need to know - does it reduces on daily or month or quarter basis
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Hello,

Neither are car loan interest rates calculated on 'simple' or 'compounded' interest rates

But - its calculated in Reducing Interest rate scheme

It means - interest will be calculated in on reduced principal amount (i.e Principal Outstanding)

See below Repayment Schedule which is calculated on 1 Lakh loan amount @ 12% for 12 month



EMI NumberEMI AmountInterestPrincipal PaidPrincipal Outstanding

1.
Rs.8885
Rs.1000
Rs.7885
Rs.92115


2.
Rs.8885
Rs.921
Rs.7964
Rs.84151


3.
Rs.8885
Rs.842
Rs.8043
Rs.76108


4.
Rs.8885
Rs.761
Rs.8124
Rs.67984


5.
Rs.8885
Rs.680
Rs.8205
Rs.59779


6.
Rs.8885
Rs.598
Rs.8287
Rs.51492


7.
Rs.8885
Rs.515
Rs.8370
Rs.43122


8.
Rs.8885
Rs.431
Rs.8454
Rs.34668


9.
Rs.8885
Rs.347
Rs.8538
Rs.26130


10.
Rs.8885
Rs.261
Rs.8624
Rs.17507


11.
Rs.8885
Rs.175
Rs.8710
Rs.8797


12.
Rs.8885
Rs.88
Rs.8797
Rs.0



With respect to second question - With Private Banks - its calculated on monthly reducing, while with most of Nationalized banks - its calculated on daily reducing balance.
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