Flat vs Reducing Rate Calculator
See what a flat interest quote really costs against a normal reducing-balance loan before you sign.
The same headline rate, two very different loans
Two lenders quote you "10%". One means a flat rate: interest charged on the full original loan amount for the entire tenure, no matter how much you have already repaid. The other means a reducing-balance rate: interest charged each month only on what you still owe — the convention every home loan uses. The same headline rate can mean two very different loans, and the flat one always costs more.
This calculator takes one loan amount, one quoted rate and one tenure, and prices the loan both ways: both EMIs, both interest totals and the extra cost of the flat quote in rupees.
The two interest conventions
Flat: Interest = P × r × t · Reducing: EMI = P × i × (1 + i)ⁿ ÷ ((1 + i)ⁿ − 1)
- P — the loan amount
- r — the annual rate as a decimal; t — the tenure in years
- i — the monthly rate (r ÷ 12); n — the number of monthly instalments
Under the flat convention, total interest is fixed upfront and the EMI is simply (P + interest) ÷ months. The reducing side uses the standard amortisation schedule — the same maths as our EMI calculator — where each payment shrinks the balance that next month's interest is charged on.
How to use this calculator
- Enter the loan amount you are borrowing.
- Set the quoted interest rate — the single headline number from the lender's offer.
- Set the tenure in years.
The results price the same quote both ways: EMI at flat rate, EMI at reducing rate, total interest under each convention and — the number to focus on — the extra cost of the flat rate.
A worked example
₹5,00,000 at 10% for 3 years:
- Flat: EMI ₹18,055.56; total interest ₹5,00,000 × 10% × 3 = ₹1,50,000; total outgo ₹6,50,000
- Reducing: EMI ₹16,133.59; total interest ₹80,809.37; total outgo ₹5,80,809.37
- Extra cost of the flat quote: ₹69,190.63 — about 86% more interest for the same "10%"
Why the flat quote always costs more
Under a reducing-balance loan, every EMI repays some principal, so the balance interest is charged on falls every month — by the final year you are paying interest on a small fraction of the original loan. A flat-rate loan ignores this entirely: it keeps charging 10% on the full ₹5,00,000 until the last instalment, even though you owe nowhere near that by then.
As a rule of thumb, a flat rate costs about the same as a reducing-balance rate of roughly 1.7 to 1.9 times the headline number — so a "10% flat" personal or vehicle loan behaves like a high-teens reducing loan. Before comparing offers, put every quote on the same footing: ask the lender for the reducing-balance equivalent, or check it here.
Flat quotes are common in vehicle loans, consumer-durable finance and some personal and gold loans, where the low-looking headline helps sales. Home loans and most bank personal loans are quoted on reducing balance.
Never compare the headline numbers directly — convert the flat quote to its reducing-balance equivalent first. Enter the flat offer in this calculator and compare its total interest against the reducing-rate offer for the same amount and tenure.
At the same headline rate, yes — in the example above, ₹18,055.56 against ₹16,133.59. The two only match at 0%, where both conventions collapse to plain principal ÷ months.
Yes. RBI's Key Facts Statement rules require lenders to disclose an annual percentage rate (APR) on retail loans — an all-in annualised cost computed on the actual outstanding. Ask for the KFS and compare APRs, not headline quotes. These disclosure norms are current and can be updated by RBI.
Often far less than you would expect — under a flat contract the total interest is fixed upfront, so early repayment may earn only a small rebate, if any. On a reducing-balance loan, prepayment cuts the outstanding directly and saves real interest. Check the prepayment clause before signing.