Flat vs Reducing Interest Rate Calculator
Convert a flat interest rate into its true reducing-balance rate and compare the cost.
Result
How to use
- 1
Enter the loan amount, the quoted flat rate and the tenure.
- 2
See the EMI and the equivalent reducing (effective) rate.
- 3
Compare the interest with a reducing-balance loan at the same quoted rate.
Questions
What is a flat interest rate?
Interest is charged on the full original loan for the whole tenure, even though you repay part of it every month. Total interest = Loan × flat rate × years.
Why is the effective rate almost double?
Because you keep paying interest on money you have already returned. A 10% flat rate for 3 years works out to about an 18% reducing-balance rate. Always compare loans by the reducing rate (APR).
Where are flat rates used?
Some two-wheeler, car, consumer-durable and personal loans quote flat rates. RBI requires lenders to disclose the annualised (reducing) rate in the Key Fact Statement.
About this Flat vs Reducing tool
Flat vs Reducing Interest Rate Calculator — Convert a flat interest rate into its true reducing-balance rate and compare the cost. It is one of 200 free tools on namasivayam.in, made by software engineer Namasivayam Vadivelan for everyday use in India.
Everything is calculated instantly in your browser: nothing you type or upload is sent to any server, there is no sign-up, and it works on mobile and desktop. Enter the loan amount, the quoted flat rate and the tenure.
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Results are estimates to help you plan. They are not financial, tax or medical advice.