A car loan of Rs 10 lakh at 8.75% interest could save you more than an auto loan at 7.35% rate; know how

economictimes.indiatimes.com:

The method adopted by the lender impacts the total interest outgo on the loan. The daily reducing balance method is the most cost-effective option for borrowers because the interest is calculated on the outstanding day-end balance on a daily basis. Even though the interest rate of such a loan will be higher, the total outgo on interest will be lower (see table).

Daily reducing balance loans are cheapest
Interest outgo on car loan of Rs.10 lakh for five years.

As is evident, the daily reducing loan at 8.75% works out to be more beneficial to a borrower, compared to a monthly reducing loan at 8.5%.

Under the monthly reducing method, the balance at the end of the previous month will be considered for calculating the interest. If the EMI falls on the fifth day of the month, the borrower ends up paying interest on the amount. However, under the daily reducing balance method, the interest calculation will take the EMI payment into account the very same day.

Many borrowers make part prepayments as their income goes up or they get some windfall gain.

The daily reducing method become even more favourable if the borrower makes any part prepayment during the course of the loan. The daily reducing loan will immediately take the payment into account, while the monthly reducing balance will do so only at the end of the month. In the annually reducing balance, the outstanding balance for the previous year is considered for calculating the interest on a monthly basis.