When studying your loan repayment schedule to calculate the EMI to be paid each month, it is essential to determine how the interest was charged on your loan. There are not one but two different methods of EMI calculation, declining balance rate and flat interest rate.
In a flat interest rate, a fixed rate of interest is calculated on the principal loan amount. This interest is added to the principal amount, and the final sum is divided by the total number of instalments to calculate your monthly EMI amount.
In a declining balance rate, the interest is calculated on the outstanding principal amount at a particular time interval. As you keep repaying the loan amount with your EMIs, the outstanding principal amount starts reducing, resulting in lower EMI as time progresses.