A loan is a sum of money acquired by a borrower or a lender (whereby the lender may be a financial institution are a person who is financially stable) with an aim of repaying the money after a certain agreed period of time. In paying back the money borrowed which is always referred to as principal, in equal amounts, The total principal amount that is owed reduces with each loan payment and so does the interest amount that has to be paid each time. Therefore, there is always a steady decrease in the regular payments.
Considering a reducing balance loans, regular interest and principal payments are always initially higher while when the principal repayments remain constant, the interest payments gradually decrease.An example is how a home loan works. The initial cost is always higher than a table loan and is not often for housing.
Here’s how it works
For And Against
Over the life of your loan you’ll pay less interest than you would with a table loan. A reducing balance (non-table) home loan can be a good idea if your income is expected to decrease; for example, if you or your partner plans to stop working in a few years’ time.
Higher initial repayments on a reducing balance (non-table) home loan make this type of loan more expensive in the short / medium term. It may be more affordable for you to make regular payments of the same amount under a table loan.