Finance – Rate of Interest? Explained in a much simple way!

Well!! This is a terminology we have been studying since our school days. But, still at times we do face problems when this term comes into picture while taking any type of finance. Such as Personal Loan, Home Loan, Car Loan, etc.

Getting into the definition part of it.

As defined in Investopedia:

Interst Rate

Its for sure, once we have read the above definition we have a fair idea what it means.

Now, just to put the above definition in a simpler term.

Simplified Definition:

Depending on the money being taken from a bank or a finance company as a loan (be it personal loan, home loan, car loan, education loan,etc.). Rate of Interest will be charged for the total amount borrowed. 

Let me explain it with a scenario:

Let us consider that I have taken a personal loan of say Rs 10,000/- for an example from any bank or a finance company.

And the said Rate of Interest being charged is of 11.15%. annually. Say, the loan tenure is said to be 2 years.

Note: Rate of Interest is generally calculated on a yearly basis. There are two types of interest that is calculated.

  • Simple Interest
  • Compound Interest

In the above said scenario for the loan amount Rs 10,000/-

If we say it to be a simple rate of interest that will be calculated. Then, total interest being paid at the end of 2 years would be Rs 2230/-

If we say it to be a compound interest that will be calculated. Then, total interest paid at the end of 2 years would be Rs 2354.32/-

The difference of Interest amount is seen because in simple interest the interest is being calculated only on the principal amount, your interest amount of first year is not added here to calculate the interest for the 2nd year. But, in case of compound interest it is being calculated not only on the principal amount but it is calculated on (principal amount + interest amount of first year).

Formula used to calculate Simple Rate of Interest and Compound Rate of Interest is:

(Source of formula: Investopedia)

Simple Rate of Interest = P (Principal) x I (Annual Rate of Interest) x N (Years)

Compound Rate of Interest = P (Principal) x [ ( 1 + I(Rate of Interest) N (Months) ) – 1 ]


DISCLAIMER: This article is only meant for general education purpose. 

Applying for a Car Loan? 4 things you should take care of, before you apply for it!!


One thing which can give you sleepless nights. If you land up with wrong financier for any kind of loan.

But, on the other hand. If you make a right decision and do all the possible research before applying for a loan.

Undoubtedly! you will be on a much much safer side by having nothing to worry about. Provided!!

You continue to pay the due amount every month (EMI) without fail! 🙂

Want to know more about EMI. Bet you should read this post of mine.

EMI? Explained in a much simple way!

Okay!! Too much of gyan on general terminology of loan though!

Yes, coming to CAR Loan!!

Car Finance

According to me. Personally having studied many lenders of loan while I had to purchase my car.

This is what I did. These 4 things which I checked has made life a much easier and simpler. Because I have nothing to worry about except to pay the monthly EMI without fail.

  • Loan Amount:

Ah! common ideally any person looking for a car loan will already have some idea as to how much loan amount will be required to purchase a car.

Generally, banks will be ready to pay the borrower upto 90% of the On Road Price of the vehicle.

Or, If you seem to be more lucky enough and they consider you to be one among their privileged customer and you are associated with the bank from many years or since a decade. Then they would not hesitate to even lend you upto 100% (Chances of this being very less).

So based on the amount you have in your savings which you can utilize to pay as a down payment to purchase the car. Decide the loan amount more wisely.

Lesser the loan amount = Lesser interest payable at the end of the tenure

  • Loan Tenure:

Minimum duration any bank provides a car loan is for 1 year and maximum being 7 years for a New Car.

So first thing what I did was to decide as to which tenure if I select would be more feasible and better for me.

Well, In my case. I wanted maximum amount of loan. So one way for me to do was to go for a longer tenure.

More the tenure = More loan amount you are eligible to get (Be informed, this will also lead to pay more interest amount at the end of tenure)

  • Rate of Interest:

Average Rate of Interest of best banks lending car loan ranges from 8.35% to 14.74%.

Once you made up your mind on tenure of the loan. Be calculative about what will be the best interest to go with. Keeping in mind the tenure you have decided to take.

Ideally, If you choose for longer tenure. Best thing to do is to choose the bank which will provide you the least rate of interest on the loan amount.

By doing this, you can save lots of money on interest being paid by the end of tenure.

It is always advisable to go for the bank which will provide you the provision of “NIL” almost negligible processing or foreclosure charges for the car loan amount.

Ideally, most of the banks charge premium on these charges. So it was always to important to notice this before applying for any banks for a Car Loan.

Conclusion: Once you are clear with these things as mentioned in the above post. This will ease your process of choosing the best loan based on your requirement and ease of applying and repaying the loan.

Hope so this post was of some help for you!

Keep reading and sharing if you like the posts I write!

If you think I need to add some more points or missed out on anything. Do comment your thoughts on the above written post.

Processing and Foreclosure Charges? Explained in a much simple way!

Yes, Everyone has at least a little confusion with respect to these terminologies.

So what you think would be the meaning of these terms??


How stupid is to ask such a question? If you would have a better understanding of it. Isn’t it obvious? that you wouldn’t have been here to read this post at all??

No Problem! By the end of this post I am sure you will be able to figure out what this terms exactly mean.


process and forecluser

Processing Charges: These are the charges applied by a bank or any finance companies to process your loan application and provide you the loan amount based on your eligibility criteria and terms and conditions of the provider bank or any financial company.

Basically, it is the charges applied to the customer by any financial organization to meet the costs they come across to give a better efficient service to the customer.


Before, applying for any loan. Make sure you check for these charges properly. So that you are saved from paying heavy processing charges for the loan amount.

Because there are banks or finance companies which charge almost Nil or negligible charges to their customer.

Foreclosure Charges: These are charges applied by the bank or any finance companies to process the closure of your loan in advance.

For Example:

Say by Grace of God! you could save huge money in shorter duration of time and you are now willing to pay all the remaining EMIs in advance. Then, you can do so by applying for foreclosure of the loan.


A gentle reminder, would be of no harm!

Please ensure before applying for any loans to avoid yourself from paying heavy foreclosure charges.

Because, there are banks or finance companies which charge almost Nil or negligible charges towards foreclosure of the loan.

Conclusion: No matter how careful you are in terms of loans and finance. Don’t ever be negligible with respect to these charges.

Because these charges might be negligible if the loan amount is small.


Same charges might be huge enough if the loan amount is large.

Hope so this post was of some help for you!

Keep reading my blog! Do let me know through your comments, if you have any specific questions with respect to the above post!

What is Finance? Want to know it in a much simpler way?

Yes, Finance is the term which will confuse most us!!

All of us do come across this term not just once but most of the times in our life. Basically, when we end up having big goals to achieve but will not be having that much amount of money to fulfill it.

Exactly!! This is when Finance comes into picture.

Definition: Let me explain it by breaking it into 2 parts.

  • 1st part – Receiving Money –  Any organization (Banks, Finance companies, etc.) or any person will lend you money to fulfill your dreams when you badly needed it.
  • 2nd part –  Returning Money – You need to return the money you received from the lender.

Now you might be thinking this is very simple thing to do right????


Here is the catch, Please be very careful with this i.e. specially in,

2nd part –  While returning money back, you need to pay additional money in the form interest to the money you had received.


The time in our life, most of the time when we come across this terminology called Finance. In most of the cases, we tend to be in more hurry to somehow get the money at this moment and let’s think about returning money in later part.

And eventually, end up paying much higher interest rates for the money received.

So please be careful in deciding and thoroughly understand any finance matters and only then step into it.

Thanks for reading this post.

Hope so, this was of some help to you in understanding the term Finance.

Have any questions in mind about Finance?