When you take a home loan, you’ll often hear terms like “monthly reducing balance” or “daily reducing balance.” These may sound technical — but they can make a real difference in how much interest you pay over the life of your loan.
So what exactly is the daily reducing balance method? And should you choose it over the traditional monthly method?
Let’s break it down in simple terms, so you can make a smarter, more informed decision for your dream home.
First, what is the daily reducing balance method?
In the daily reducing balance method, the interest on your home loan is calculated on the outstanding principal amount at the end of each day — not just at the end of the month.
This means every time you make a payment (or prepayment), your outstanding loan balance reduces immediately — and your interest is calculated on that reduced amount the very next day.
In contrast, with monthly reducing balance, your principal gets updated only once a month — so your interest continues to be calculated on the previous balance for longer.
Why does this matter?
Let’s say you have a loan of ₹40 lakh at 8.5% interest. If your lender uses a daily reducing balance method, you’ll pay slightly less interest over time compared to monthly or annual reducing methods — especially if you make frequent payments or part-prepayments.
Even small differences in how the interest is calculated can lead to thousands of rupees saved over a 15- or 20-year loan.
Daily vs Monthly Reducing Balance — A Quick Comparison
| Feature | Daily Reducing Balance | Monthly Reducing Balance |
| Interest recalculated | Every day | Once a month |
| Impact of prepayments | Immediate | Delayed until next cycle |
| Interest paid overall | Lower | Slightly higher |
| Common with | Digital/NBFC lenders | Traditional banks |
| Best for | Borrowers making frequent payments | Borrowers with fixed EMIs |
So, if you’re someone who plans to make part-prepayments regularly, or wants to maximise interest savings, daily reducing balance might be your best bet.
Does it reduce my EMI?
Not directly. The EMI amount you pay each month usually stays the same (unless you refinance or restructure the loan). But with daily interest calculation, a bigger portion of your EMI goes toward the principal faster — which helps you repay the loan quicker and reduces the total interest paid.
In some cases, this can even lead to finishing your loan a few months early — or allow you to save more through smaller prepayments.
Are there any downsides?
Not really — but here are a couple of things to keep in mind:
- You need to be disciplined with payments. If you miss a payment, daily interest adds up faster too.
- Some traditional lenders may not offer this model — it’s more common with digital lenders and NBFCs like Easy Home Finance.
The good news? At Easy Home, our daily reducing balance loans come with transparent EMI schedules and digital tracking tools, so you always know how your money is working for you.
Final thoughts: Should you choose a daily reducing balance loan?
If your goal is to pay less interest over time, and you like the idea of your payments making an impact immediately, then yes — a home loan with daily reducing balance is a smart option.
It’s especially helpful if:
- You plan to make extra payments often
- You’re self-employed with irregular cash flows
- You want maximum transparency and value from your loan
At the end of the day, every rupee counts when you’re repaying a home loan. Choosing the right interest calculation method could help you save more and become debt-free sooner.
Want to check how much you can save with a daily reducing balance home loan?
Try our transparent EMI calculator at Easy Home Finance.
It’s paperless, fast, and made to help you choose what’s best for you — not the bank.
Let’s build your dream home the smart way.
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Apply for a Home Loan with Easy Home Finance : https://easyhomefinance.in/site/apply
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