If interest is calculated on the outstanding principal balance after each repayment, the interest burden generally:

Type: MCQ • Marks: 1

A. Increases automatically

B. Remains unchanged in every case

C. Decreases as the principal outstanding decreases

D. Becomes zero immediately

Explanation

When interest is based on the reducing outstanding balance, a lower principal produces lower interest for the same rate and period.

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UPSC Principal & Vice Principal Management Finance Administration

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