Flat vs Reducing Rate Calculator
See the hidden cost of flat interest rates. The same 10% can mean wildly different EMIs, here's by how much.
What is Flat vs Reducing Rate?
Flat rate charges interest on the original principal for the entire tenure. Reducing balance charges interest only on the outstanding amount, which shrinks each month. Flat is almost always the more expensive choice.
Reducing balance uses standard EMI formula on a shrinking principal.
Worked example
On a ₹5,00,000 loan at 10% for 5 years: flat rate EMI ≈ ₹12,500 (total interest ₹2.5L), reducing rate EMI ≈ ₹10,624 (total interest ~₹1.37L). The same 10% costs ₹1.13 lakh more in flat.
Frequently asked questions
Which is better, flat or reducing?
Reducing is always cheaper for the borrower. Lenders who advertise flat rates are often 1.8–2× more expensive than their stated rate implies.
Where is flat interest commonly used?
Some personal loans, certain NBFC products, and gold loans. Home loans, car loans, and student loans use reducing balance.
Can I convert a flat-rate loan to reducing?
You can refinance with another lender offering a reducing rate. Check prepayment terms first.