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Loans

Annual Reducing Method

Let's dive into the concept of diminishing balance method, a technique used to calculate interest on loans. The reduced principal is taken into consideration at the end of each year, but since loan repayments are based on Equated Monthly Installments (EMI), the interest is calculated on the original loan amount for twelve months. Afterward, the payments towards the principal are factored in. This approach may not be the most advantageous for borrowers.

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