Reducing balance method

This one is not written up yet

The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.

Written up from the same chapter

• AmortisationThe repayment of borrowed capital over a fixed term through equal instalments, each of which is split between interest and principal in proportions that shift over the life of the loan.
• Credit scoreThe number a credit information company builds from your loan and credit-card repayment history, and the first thing a lender looks at when your application arrives.
• Debt to income ratioMonthly debt servicing commitment divided by monthly income — the ratio that says whether a household's income can carry the loans it already has, let alone another one.
• Debt trapThe state a borrower reaches once debt is being used to meet ordinary living expenses, so fresh borrowing becomes necessary to service the borrowing already outstanding.
• HypothecationA charge over demat securities where the lender needs the borrower's concurrence to appropriate them — the same book entries as a pledge, with one extra confirmation, and a term used only in NSDL.
• PledgeA charge created over demat securities in favour of a lender who may appropriate them unilaterally on default — created by book entry under section 12 of the Depositories Act, not by handing over anything.