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Flat vs Reducing Rate Calculator

Loan Details

₹
₹10,000₹50,00,000
%
1%30%
Loan Tenure
1 Yr30 Yrs

Comparison Output

Details
Flat
Rate
Reducing
Balance
Monthly EMI
₹12,500
₹10,624
Total Interest
₹2,50,000
₹1,37,411
Total Amount
₹7,50,000
₹6,37,411
Save ₹1,12,589 with reducing balance rate.

Flat Rate Breakdown

Principal
Interest

Reducing Rate Breakdown

Principal
Interest

The "Cheap Loan" Trap

When shopping for personal loans or car loans, you might see advertisements for incredibly low interest rates like "Just 7% p.a.!". Often, in the fine print, this is a Flat Interest Rate. Our calculator helps you instantly convert this deceptive flat rate into its true Reducing Balance equivalent so you can make an apples-to-apples comparison with other loan offers.

How to Compare Loan Offers

Always ask your lender for the Effective Annualised Rate (Reducing Balance Rate) and the complete repayment schedule. If they refuse to provide it or only focus on the low flat rate, use this calculator to find out exactly how much extra interest you will be paying over the tenure of the loan.

Compare Flat Interest Rate vs Reducing Balance Interest Rate. Discover the hidden cost of flat rate loans and see exact EMI and total interest differences.

Flat vs Reducing Rate — Frequently Asked Questions

Understand how banks calculate interest and avoid common loan traps.

In a Flat Interest Rate loan, the interest is calculated on the entire original principal amount for the entire tenure of the loan. This means your interest component in the EMI remains fixed, even as you keep repaying the principal every month.

In a Reducing Balance loan, the interest is calculated only on the outstanding principal balance. As you pay your EMI, a portion goes towards reducing the principal. The next month's interest is calculated on this reduced principal, meaning you pay less interest over time compared to a flat rate.

Flat rates appear much lower and more attractive. A bank might offer a car loan at an "8% Flat Rate", which sounds incredibly cheap. However, because you are paying interest on the full original amount every year, the actual effective interest rate (Reducing Rate equivalent) is usually around 14.5% to 15%.

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