When you borrow a business loan from a lender, you must repay them the principal amount you borrowed and the predetermined interest rate they are charging you for the loan.
After your business loan application gets approved, lenders will offer you two EMI interest rate options to repay the loan – a fixed interest rate and a reducing interest rate.
What is the main difference between fixed and reducing interest rates?
- With a fixed interest rate, your monthly EMIs will be the same amount for the entire loan tenure.
- With a reducing interest rate, your principal amount will change as you pay off the loan. This means your EMI amounts every month will be of different values.
You must decide which interest rate works better for your business needs, as one does not significantly reduce the interest you owe to your lender.
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