Flat vs Reducing Rate Calculator
Dealers quote flat rates because they look cheap. Find out what the loan really costs — and its true reducing-balance rate. Free, private, no signup.
The loan offer
Flat vs reducing — same loan
Flat-rate method
EMI-
Total interest-
Reducing-balance method
EMI-
Total interest-
You pay extra under flat-
The flat quote really equals-
Why flat rates are a pricing trick
Under the flat method, interest is charged on the full loan amount for the entire tenure — even though you've been repaying principal every month. Total interest = P × r × t ÷ 100, and EMI = (P + interest) ÷ months.
Under the reducing-balance method (what banks use for home and most personal loans), each EMI's interest is charged only on the outstanding balance — so interest shrinks every month.
- The rule of thumb: a flat rate costs roughly 1.8× the same reducing rate. That "8% flat" car loan is really ~14.5% — try it above.
- Who quotes flat? Car dealers, two-wheeler finance and consumer-durable loans. Banks quoting "reducing" are being transparent; always compare on the equivalent reducing rate.
- The question to ask: "Is this flat or reducing?" If they say flat, divide the pain: run their quote through this calculator before signing.
FAQs
How do I convert a flat rate to reducing?
There's no exact shortcut — this calculator solves it by finding the reducing rate whose EMI matches the flat EMI. The rough rule (flat × 1.8) gets you close for typical tenures.
Are flat-rate loans ever okay?
Occasionally, when the flat quote is genuinely low (some festive two-wheeler schemes) or the tenure is very short. Compare the equivalent reducing rate against a bank personal loan before deciding.
Do home loans use flat rates?
No — Indian home loans are reducing-balance by regulation. Flat quotes appear on vehicle, personal and consumer-durable finance.
Is my data sent anywhere?
No. Everything is computed in your browser; nothing leaves your device.
Disclaimer: Estimates for illustration, computed in your browser — no data leaves your device. Actual loan terms include processing fees and lender-specific rounding. Verify with your lender.