{"id":387,"date":"2025-07-22T07:48:36","date_gmt":"2025-07-22T07:48:36","guid":{"rendered":"https:\/\/easyhomefinance.in\/knowledge-hub\/?p=387"},"modified":"2025-07-30T13:00:05","modified_gmt":"2025-07-30T13:00:05","slug":"should-you-opt-for-a-home-loan-with-daily-reducing-balance","status":"publish","type":"post","link":"https:\/\/easyhomefinance.in\/knowledge-hub\/should-you-opt-for-a-home-loan-with-daily-reducing-balance\/","title":{"rendered":"Should You Opt for a Home Loan with Daily Reducing Balance?"},"content":{"rendered":"\n

When you take a home loan, you\u2019ll often hear terms like \u201cmonthly reducing balance\u201d or \u201cdaily reducing balance.\u201d These may sound technical \u2014 but they can make a real difference in how much interest you pay over the life of your loan.<\/p>\n\n\n\n

So what exactly is the daily reducing balance method<\/strong>? And should you choose it over the traditional monthly method?<\/p>\n\n\n\n

Let\u2019s break it down in simple terms, so you can make a smarter, more informed decision for your dream home.<\/p>\n\n\n\n

First, what is the daily reducing balance method?<\/strong><\/p>\n\n\n\n

In the daily reducing balance method<\/strong>, the interest on your home loan is calculated on the outstanding principal amount at the end of each day<\/strong> \u2014 not just at the end of the month.<\/p>\n\n\n\n

This means every time you make a payment (or prepayment), your outstanding loan balance reduces immediately \u2014 and your interest is calculated on that reduced amount the very next day.<\/p>\n\n\n\n

In contrast, with monthly reducing balance<\/strong>, your principal gets updated only once a month \u2014 so your interest continues to be calculated on the previous balance for longer.<\/p>\n\n\n\n

Why does this matter?<\/strong><\/p>\n\n\n\n

Let\u2019s say you have a loan of \u20b940 lakh at 8.5% interest. If your lender uses a daily reducing balance method<\/strong>, you\u2019ll pay slightly less interest<\/strong> over time compared to monthly or annual reducing methods \u2014 especially if you make frequent payments or part-prepayments.<\/p>\n\n\n\n

Even small differences in how the interest is calculated can lead to thousands of rupees saved<\/strong> over a 15- or 20-year loan.<\/p>\n\n\n\n

Daily vs Monthly Reducing Balance \u2014 A Quick Comparison<\/strong><\/p>\n\n\n\n

Feature<\/strong><\/td>Daily Reducing Balance<\/strong><\/td>Monthly Reducing Balance<\/strong><\/td><\/tr><\/thead>
Interest recalculated<\/td>Every day<\/td>Once a month<\/td><\/tr>
 Impact of prepayments<\/td>Immediate<\/td>Delayed until next cycle<\/td><\/tr>
Interest paid overall<\/td>Lower<\/td>Slightly higher<\/td><\/tr>
Common with<\/td>Digital\/NBFC lenders<\/td>Traditional banks<\/td><\/tr>
Best for<\/td>  Borrowers making frequent payments<\/td> Borrowers with fixed EMIs<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

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.<\/strong><\/p>\n\n\n\n

Does it reduce my EMI?<\/strong><\/p>\n\n\n\n

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<\/strong>, a bigger portion of your EMI goes toward the principal faster \u2014 which helps you repay the loan quicker and reduces the total interest paid.<\/p>\n\n\n\n

In some cases, this can even lead to finishing your loan a few months early \u2014 or allow you to save more through smaller prepayments.<\/p>\n\n\n\n

Are there any downsides?<\/strong><\/p>\n\n\n\n

Not really \u2014 but here are a couple of things to keep in mind:<\/p>\n\n\n\n