Benefits of Reduced Rate of Interest with Commercial Vehicle Financing

Commercial vehicle loans are a huge help to businesses that wish to add new trucks or vans to their fleets. However, before applying for one, one should compare commercial vehicle loan interest rates offered by multiple lenders to find the most budget-friendly option. 

The interest rate will determine how much pay throughout the loan. It will also have a major impact on the monthly installments. As a business owner, one must understand the difference between flat and reducing interest rates to make an informed decision. 

What is a Flat Interest Rate?

The interest is calculated on the entire principal amount throughout the loan tenure. Such an approach does not take into account the reduction in the principal amount as one makes the monthly payments. Both the interest rate and the amount owed remain unchanged throughout the loan term.

What is a Reducing Interest Rate? 

As the name suggests, a reducing or diminishing balance rate is calculated on the basis of the outstanding commercial vehicle loan amount. This outstanding loan amount decreases with every monthly payment, leading to reduced interest payable in subsequent months. The rate of interest for commercial vehicle loans offered by some leading NBFCs and banks is calculated on reducing balance.

Benefits of Reducing Rate of Interest

• Lower overall interest payment: With consistent monthly payments, one can pay less interest over time than flat rates. This would considerably help in reducing the cost of borrowing for the business.

• Shorter repayment period: As the monthly amount shall gradually decrease with every installment, one would be able to repay the commercial vehicle loan faster than a flat interest rate loan.

• Flexible tenure: Commercial vehicle loans with reduced interest rates provide a greater degree of flexibility when it comes to repayment tenure. Apart from benefiting from the best commercial vehicle loan interest rate, one gets to select a loan tenure that suits the financial capabilities of the business. 

Although commercial vehicle loans with flat interest rates are easier to calculate and have predictable monthly payments, they are generally not advantageous for long-term savings. By selecting a commercial vehicle loan with a reduced rate interest rate, one can enjoy lower interest payments on the whole.