Which loans use flat rates?

Flat vs reducing rate

Why a 'flat' rate costs far more than it sounds.

You save with a reducing rate

₹47,909

Flat-rate EMI: ₹1,528
Reducing-rate EMI: ₹1,195
Flat-rate total interest: ₹1,20,000
Reducing-rate total interest: ₹72,091

A flat rate charges interest on the full loan for the whole tenure, even as you repay it. A 10% flat rate is really about 15.4% on a reducing balance. Always ask a lender which one they are quoting.

Flat rate: total amount: ₹2,20,000
Reducing rate: total amount: ₹1,72,091
A 10% flat rate really costs (reducing equivalent): 15.42%

Total interest paid

Flat rateReducing rate

What this calculates

Some lenders quote a flat interest rate, charged on the full loan amount for the whole tenure. A reducing rate is charged only on the outstanding balance. The same number means very different costs.

How it's calculated

Flat interest = P × I × T ÷ 100; Flat EMI = (P + interest) ÷ (T × 12)

Reducing EMI = [P × I × (1 + I)ᵀ] ÷ [(1 + I)ᵀ − 1], I = rate ÷ 1200, T = months

Results are illustrations based on the inputs you choose. Returns are not guaranteed and actual outcomes will vary. This is education, not advice.

Questions about this tool

Some personal, consumer durable and vehicle loans. Always ask for the reducing-balance equivalent (or APR) before signing.