Flat vs Reducing Rate Calculator
Convert a flat interest rate to its real reducing-balance rate
Flat vs Reducing
Flat rates and their real (reducing) rates
| Flat rate | Reducing rate over 36 months |
|---|---|
| 6% | 11.08% |
| 8% | 14.55% |
| 10% | 17.92% |
| 12% | 21.2% |
| 14% | 24.4% |
| 16% | 27.53% |
| 18% | 30.59% |
- 1Enter the loanAmount and tenure in months
- 2Enter the flat rateAs quoted by the lender
- 3See the real rateAnd the extra interest you pay
Flat rate vs reducing rate
A flat rate charges interest on the full loan for the whole tenure, even though you repay part of it every month. A reducing rate charges interest only on what you still owe.
Flat interest = P × flat rate × years
Reducing rate = the yearly rate at which the same EMIs repay P
Why a flat rate looks cheaper than it is
Halfway through a loan you owe only about half the amount, but a flat rate still charges interest on all of it. That's why a 10% flat rate works out to roughly 17–18% on a reducing balance for typical tenures.
Where flat rates show up
Consumer durable loans, some vehicle and personal loans from NBFCs, and microfinance often quote flat rates. Banks' home and personal loans use reducing balances. Always compare offers on the reducing rate or the APR in the key facts statement.
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Frequently asked questions
Is a flat rate always worse?
For the same number, yes. A flat rate is only fair to compare once it's converted to a reducing rate, which this calculator does.
Why does the gap grow with longer tenures?
Over a longer loan you spend more of the time owing much less than the original amount, but the flat rate keeps charging on the full sum.
Do lenders have to disclose the real rate?
Yes. RBI requires lenders to give a key facts statement showing the annual percentage rate (APR), which includes interest and fees.
These results are estimates for planning only, not financial, investment or tax advice. Rates and rules change, and your bank, fund house or employer may calculate slightly differently. Check with them or a qualified adviser before you decide.
Sources
Last reviewed: October 2026