When the declining-balance method is used to calculate interest on an installment loan,the periodic interest rate is applied to the

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With the declining-balance method, the periodic interest rate is applied to the outstanding balance each period. As the loan balance decreases with each payment, the interest charged also reduces proportionally. This method is also known as the reducing balance method or the diminishing balance method.

When the Declining-Balance Method Is Used to Calculate Interest on an Installment