Flat vs Reducing Rate

Don't get fooled by "lower" flat rates. Compare the true cost of flat vs reducing interest rates.

Loan Details

Loan Amount

₹

Tenure

Years

Interest Rates

Flat Rate

Interest on original principal

Reducing Rate

Interest on outstanding balance

Flat Rate Trap

A 10% flat rate is roughly equivalent to an 18-19% reducing rate. Always compare actual payable amounts!

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Reducing Rate Wins

₹0

You save this amount by choosing the reducing rate option.

Flat Rate @ 10%

Monthly EMI₹

Total Interest₹0

Total Payable₹0

Effective Rate: ~% (reducing equivalent)

Reducing Rate @ 12%

Monthly EMI₹

Total Interest₹0

Total Payable₹0

Standard bank/NBFC calculation method

Side-by-Side Comparison

Documentation

Understanding Loan Interest

Flat Rate Interest

Interest is calculated on the original loan amount for the entire tenure. Even as you repay principal, interest remains the same. Often used by NBFCs and dealerships.

Formula

Interest = Principal × Rate × Time

Reducing Rate Interest

Interest is calculated on the outstanding balance. As you pay off principal, interest reduces. Used by banks and regulated lenders. This is the fairer method.

Formula

EMI = P × r × (1+r)ⁿ / [(1+r)ⁿ - 1]

Last Updated: January 2026

Disclaimer: This calculator provides estimates for educational purposes. Always verify with your lender for exact figures.