Hi all,

I would like to ask the difference regarding method of calculation between straight line and reducing balance.

Scenario:

Monthly payment = 1500.00
Terms = 5 years / 60 months
Interest = 12% per annum

Suppose principal for both method should same right? The difference only on interest calculation on monthly basis.

Or I'm wrong on this?

Thanks.

This post has been edited by jabz: Feb 24 2016, 10:40 AM

er.. the quality of the answers heavily depends on the quality of the question.

The scenario U stated, in itself, has already severely limited the answers
AND
add "suppose principal for both method should be same right?"
BECOMES
how lar to respond to U clearly?

U are asking about the difference of straight line (eg HP/car purchase) VS reducing balance (eg mortgage)?
Google: straight line vs reducing balance loan
spoon feeding: https://www.google.com/webhp?sourceid=chrom...0balance%20loan

OR
Asking how much paid in reality (cost of borrowing) between those 2 if interest stated 12% (HP or per annum?) ?
OR
??
maybe my IQ too low or not enough caffeine in my blood...

This post has been edited by wongmunkeong: Feb 24 2016, 09:58 AM

Reducing balance:

Interest charged will be high and becomes lower towards the end of tenure
Principal charged will be low and becomes higher towards the end of tenure

sorry... I'm also bit confuse...
12% interest per year
my boss said that Hire purchase also have reducing balance instead of straight line... so I want to proof...
if the monthly payment equal to RM1500... the cost of the car (principal) should be same or not?

what I'm understand, straight line basis the interest will be flat or same each month through the tenure and reducing balance the interest will be less along the way until end of tenure...

so total interest will be difference for both method but not the principal, right?

correct, but the principal ie the cost of the asset will be same for both method??

Yes.

This post has been edited by rapple: Feb 24 2016, 11:33 AM

Thank you...

Yes. Here's a short and easy to understand explanation on straight line vs reducing balance

thanks

Move from this, or I need to open new thread?
Reducing balance vs financial / capital lease... is there difference in term of calculation?
thank you...

the principal loan and present value can be same or different?

This post has been edited by jabz: Feb 24 2016, 12:21 PM

Capital lease is not an interest calculation method.

Where flat rate & reducing balance is belongs to one category (interest calculation method)
Capital lease, mortgage, hire purchase & diminishing equity etc belong to another (financing structure).

As such, the resultant interest payments can effectively adhere to straight line calculations / reducing balance method in the back end calculations, or even something else altogether.

This post has been edited by METALRAGE: Feb 24 2016, 12:46 PM

Hi thanks for the response...
Based on the bold one... If I need to ask programmer to create a program... Capital lease vs hire purchase (reducing balance) is it same calculation at the back end?

Can I assume present value at the beginning lease equal to loan principal in hire purchase?

Thanks...