Full formBanking & Finance
FRIstands forFlat Rate of Interest
Full Form of FRI
What is FRI?
Flat Rate of Interest (FRI) is a method of calculating interest on loans where the interest is charged on the full principal amount borrowed for the entire duration of the loan, irrespective of the repayments made. This means that even as the borrower repays parts of the principal, the interest continues to be computed on the original loan amount, leading to a higher effective interest cost compared to a reducing balance method. In India, FRI is commonly used by banks and non-banking financial companies (NBFCs) for personal loans, car loans, and consumer durable loans. It is often advertised as a simple, easy-to-understand rate, but borrowers should be aware that the effective annual rate (APR) is much higher. This method is contrasted with the Diminishing Rate of Interest (DRI), which is more borrower-friendly. Understanding the difference between FRI and DRI is crucial for making informed borrowing decisions. For competitive exams like banking and finance tests, questions on FRI and its implications are common, testing candidates' knowledge of loan mechanics and consumer awareness.
FRI का फुल फॉर्म
फ्लैट ब्याज दर
Example
The bank offered a car loan at a flat rate of interest (FRI) of 9% per annum, meaning the interest is calculated on the full principal throughout the tenure.
FRI — frequently asked questions
What is the full form of FRI?
The full form of FRI is Flat Rate of Interest.
How is FRI different from reducing rate of interest?
In FRI, interest is calculated on the entire principal throughout the loan tenure, while in reducing balance, interest is calculated on the outstanding principal.
In which types of loans is FRI commonly used in India?
FRI is commonly used in personal loans, car loans, and consumer durable loans, often by NBFCs and some banks.