1. Which banks use the daily rest
method?why State Bank of India ?
How a bank calculates interest on the amount you owe them matters much in the
long run.
Home loans last so long that even minor differences can have a substantial
impact. A shift in the interest rate by even 0.25% shouldn’t be ignored. Over 15
years on a Rs40 lakh loan, for example, the difference in repayment between an
interest rate of 10.5% and 10.75% would be Rs2.24 lakh. But you already know to
look for a low interest rate, right? Here’s something you may not know, though.
Lending companies don’t calculate the EMI using the same method. So, two banks
offering the same interest rate may not offer you the same EMI, even though the
tenure and loan amount are also the same.
What’s the difference?
There are three methods, but most banks use only two of them nowadays, for
home loans at least. These are annually, monthly or daily rest (or reducing
balance) methods. In the annual method, though the EMI is paid monthly, the
adjustment towards interest and principal is made only at the end of the year.
The concept remains the same for monthly and daily reducing balance. With the
two methods, the adjustment is made on a monthly and daily basis, respective
2. The shorter the length of time the adjustment is made in, the cheaper it is.
Therefore, the daily rest method is always cheapest.
Here’s what the difference will be on a Rs20-lakh loan with a tenure of 10 years
and interest rate of 10%:
Method Tenure Amount Interest
Rate
EMI Total
Savings
Daily 10 20 10% Rs26,007 Rs1,34,040
Monthly 10 20 10% Rs26,403 Rs83,820
Annually 10 20 10% Rs27,124 NA
Result: With just a change in the method, we were able to save Rs1.34 lakh over
the 10-year term, around Rs51,000 more than we were able to with the monthly
reducing balance method.
Here’s a list of banks and the methods they use to calculate the EMI:
Bank Method
State Bank of India
Axis Bank
Bank of Baroda
Corporation Bank
DLF Housing Finance
HDFC Bank
ICICI Bank
ING Vysya
Housing Finance
Daily
Monthly
Daily
Daily
Monthly
Monthly
Monthly
Monthly
Monthly
