Reducing balance vs flat rate financing explained
KiraBoss Editorial· Last reviewed 2026-01-01· 1 min read
Flat rate is common for hire purchase. Interest is computed on the original financed amount across the full tenure.
Reducing balance — used for mortgages and most personal loans — charges interest on the outstanding balance each month.
For the same nominal rate, reducing balance is much cheaper. See the Hire Purchase Calculator for the effective-rate comparison.
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