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Reducing Balance Method Helps You Save the Money!

What are those things that you want to wipe out as quick as possible? When it comes to financial planning and availing loans, instalments are always a burden for everyone, and he/she tries to get read of it as early as possible. Traditionally, loan instalments were levied on fixed interest and mainly on the principal amount; however, the new technique of reducing balance has cut down the outflow of excessive money from your pocket.

The gulf countries like Kuwait have already adopted the reducing balance method in order to attract more customer base and offer convenience to them. Kuwait bank rates for

Let’s make a comparative analysis of how reducing balance method helps you in all the aspects-

In the traditional or fixed balance method, the interest is calculated on the principal amount for the entire tenure of the loan. If the loan amount is KD 75 thousand for the term of 20 years at the rate of 6% per annum, the rate will be applicable to throughout the tenure on KD 75 thousand, i.e., KD 4500.

On the other hand, in the reducing balance method, the EMI is calculated on the amount which remains back post payment of the EMI of earlier months, and it decreases on a monthly basis. To simplify, for the first month, the EMI will be KD 4500. The next month’s instalment will be calculated on the remaining amount, i.e., KD 70,500 and so on.

  • Kuwait bank rates for reducing balance method are slightly greater than the fixed balance calculation, but when it comes to overall calculation, it is beneficial for the customers.
  • The overall amount of interest paid to the bank is less than that of fixed interest, which undoubtedly saves your money.
  • In case of long-term loans, reducing balance is always beneficial, as the extended tenure helps to save the amount even if the interest rate is greater than the regular method. In the case of short-term loans, the situation might be different, depending on the tenure and interest rate.
  • Many banks keep fixed interest bank rates tenure a bit longer than that of reducing balance rates. However, to gain a customer base and to set a trust mark, banks are offering loans at reducing balance bank rates.

To conclude, interest rates for multiple types of loans in Kuwait are designed, bearing in mind the convenience of the customers. Not just bank rates, but the overall loan availing process and repayment has also become hassle-free.

Post Author: Fathiyya Al Shaikh

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