Go to the previous page
All posts
Residential
5 min read

Understanding Solar Loan Interest Rates: Reducing vs. Flat

Published on
June 17, 2024
Author
Subscribe to newsletter
By subscribing you agree to with our Privacy Policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Share this post

Unlock the mystery of your solar loan rate of interest!

What Is Interest Rate?

Interest rate is the cost you incur for borrowing money. Think of interest as the fee you pay to the lender for the privilege of using their funds. Understanding this concept is crucial when considering any loan, especially for significant investments like distributed solar or solar farms.

Flat Interest Rate Simplified

Flat interest rate is calculated on the entire original loan amount throughout its term. This means that the interest is charged on the principal amount for the entire duration of the loan. While this method is straightforward and easy to understand, it can often result in higher overall interest payments compared to other methods.

Imagine a flat horizon line with evenly spaced rupee signs. Each sign represents a consistent charge over time, making it predictable but potentially more expensive.

Reducing Interest Rates Unveiled

Reducing interest rates, also known as diminishing or declining balance rates, apply to the outstanding loan balance. As you pay down the principal, the interest is recalculated on the reduced balance. This method often results in lower total interest costs over the life of the loan.

Flat vs. Reducing Rates: A Comparison

When comparing flat and reducing rates, the main difference lies in how interest is calculated and applied. Flat rates are straightforward, charging interest on the full loan amount throughout the term. In contrast, reducing rates adjust the interest charge based on the remaining loan balance, which can lead to lower overall interest costs.

Real-world Scenario: ₹1,000,000 Loan

Let’s take a practical example to understand this better. For a ₹1,000,000 loan over 5 years at a 14% reducing rate, the total interest paid would be approximately ₹396,095. To achieve the same interest cost with a flat rate, you would need a flat rate of approximately 8%. This example demonstrates how reducing rates can lead to significant savings.

Why Understanding This Matters

Understanding the difference between flat and reducing interest rates can have a substantial impact on your financial decisions. By choosing the right loan type, you can potentially save thousands of rupees over the lifetime of the loan. This knowledge is especially valuable when financing solar installations, where the goal is to maximize savings and efficiency.

Blog

Our latest blogs

Businesses

Understanding Solar Subsidy in Gujarat

The Government of India approved the PM Surya Ghar: Muft Bijli Yojana on 29th February 2024 to increase the share of solar rooftop capacity and empower residential households to generate their own electricity. The scheme has..
Businesses

Understanding Solar Subsidy in UP

The Government of India approved the PM Surya Ghar: Muft Bijli Yojana on 29th February, 2024 to increase the share of solar rooftop capacity and empower residential households to generate their own electricity. The scheme has...
Residential

1 kW Rooftop Solar Plant Price in India, 2024

A 1-kW solar rooftop plant is the minimum size of solar plant that can be installed under Net Metering. 1kW is usually sufficient for an average household and where the rooftop area is also limited. To install a 1-kW system, you will need less than...
Residential

5kW Rooftop Solar Plant Price in India, 2024

A 5-kW Rooftop Solar is typically suitable for larger houses or small commercial units that have multiple air conditioners and other heavy appliances, or for small commercial spaces. To install...
Solar Installers

Understanding Rooftop Solar Mounting Structures: Types and Applications

Designing a solar power plant involves several important physical considerations, such as....
Residential

How to Integrate Aesthetic and Functional Aspects in Rooftop Solar Plant Design

A solar plant is definitely a money-saving and environment-friendly asset, but have you thought of integrating it with your building design?
Solar Installers

The Role of Software Tools in Solar Plant Design: An Overview

Designing a solar power plant may not necessarily require software, but one thing is for sure, anything that can be done through computers and its software makes the process quick and efficient. Just like......
Solar Installers

Maximizing Efficiency in Rooftop Solar Plant Design: Best Practices and Tips Understanding Orientation, Tilt, and Shadow Analysis

India is a tropical country blessed with abundant sunlight. So much so that nearly bout 5,000 trillion kWh per year of energy is incident over India’s land..
Businesses

Different types of solar installation models and why Capex is the best for MSMEs

While opting for solar, the type of financing model impacts various aspects, including project ownership, required investment, operations and maintenance, and expected returns for stakeholders. Therefore...
Businesses

How Aerem is Empowering MSMEs with Solar Adoption

Our all-encompassing solution guarantees a seamless transition to clean energy, facilitated by a fully digital and transparent process via...
Solar Installers

How Aerem is Empowering Solar EPCs With Comprehensive Solar Services

From offering collateral-free solar loans that make installations more accessible to providing a seamless procurement experience through SunStore, Aerem supports every aspect of your business. Our supply chain finance options ...
Businesses

10 Reasons for MSMEs to Install Rooftop Solar

adopting solar energy is not just an environmentally responsible choice; it is a strategic decision that can significantly benefit MSMEs in India. From reducing electricity bills and operational costs....
Businesses

Aerem Solar Loan: Everything You Need to Know

With Aerem Solar Loans, MSMEs, homeowners, and various other entities can overcome the financial barriers typically associated with solar installations. Our tailored financing solutions, strong industry partnerships,...
Businesses

5 Reasons to go for a Solar Loan

The most prominent barrier that we see among businesses is the availability of capital to install solar rooftop. But times have changed and with flexible solar loan or solar financing options ...
Businesses

How to evaluate solar rooftop EPC quotations

It's essential to select the right EPC Company with relevant experience. An experienced EPC Company has likely learned from previous installations, ensuring quality workmanship without unnecessary costs to you.
SolarTech

Your Rooftop Solar Glossary

Welcome to the Rooftop Solar Glossary, your ultimate resource for understanding the world of rooftop solar energy. Whether you're a homeowner, business owner, or solar enthusiast, our comprehensive glossary is designed to demystify the terminology and concepts related to rooftop solar installations.
SolarTech

How to make your Solar Rooftop plant Monsoon ready?

Do solar plants work in rainy seasons? This is a common question that people ask before installing solar. The answer to this is “Yes”...
Residential

Understanding Solar Loan Interest Rates: Reducing vs. Flat

Understanding the difference between flat and reducing interest rates can have a substantial impact on your financial decisions. By choosing the right ...
Businesses

Reducing Scope 2 Emissions Made Easy With Rooftops Solar

With the rising temperatures and effects of climate change, it has become more and more apparent for companies to measure and reduce their emissions. Reducing emissions...
SolarTech

Essential Guide: Understanding the Components of Your Solar Power Plant

The blog "Essential Guide: Understanding the Components of Your Solar Power Plant" provides a detailed overview of solar power plant components, emphasizing the importance of each part for optimal performance.
Businesses

Guide: How To Estimate Required Solar Installation Capacity?

The blog guides small business owners on estimating the solar capacity needed for their properties. It covers three steps: calculating average electricity usage, measuring available roof space, and checking the sanctioned load.
Businesses

Boost Solar Efficiency: Optimize PR & CUF for Peak Performance

Unlock the full potential of your solar installations with our expert guide on improving Performance Ratio (PR) and Capacity Utilization Factor (CUF). Discover actionable strategies for maximizing solar energy efficiency today.

Realise your solar potential with Aerem

We understand the unique challenges that India faces when it comes to adopting solar. Our platform is tailored to propel your business with the power of solar, setting the stage for unparalleled growth. Dive into tools, financing and SaaS systems that echo your ambitions