- Reducing-rate interest
- Extra on flat rate
- EMI at flat rate
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- EMI at reducing rate
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- Interest on flat rate
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- Interest on reducing rate
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- Extra you pay on flat rate
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- Flat rate is really
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Figures are estimates for planning only, not investment or tax advice.
Two lenders can quote the same rate and charge very different amounts. A flat rate charges interest on the full original principal for the entire tenure; a reducing-balance rate charges only on what you still owe. This calculator shows the gap.
The size of the difference
A 12% flat rate over five years is roughly equivalent to a 21% reducing rate. On ₹5 lakh, the flat structure costs ₹3 lakh in interest against ₹1.67 lakh on reducing balance — nearly double, for the same advertised number.
Where you will meet flat rates
Consumer durable loans, some two-wheeler and used-car finance, and a lot of informal lending. Regulated home and personal loans are quoted on reducing balance. If a lender will not state which basis applies, assume flat and ask for the APR.
Frequently asked questions
How do I convert a flat rate to a reducing rate?
A rough rule is to multiply by 1.8 for a typical multi-year loan. This calculator computes the exact equivalent.
Is a flat rate ever better?
Only if the flat number is dramatically lower than the reducing quote — compare the total interest, never the rate.
What should I ask a lender?
Ask for the total amount payable over the full tenure. That single number cannot be dressed up.