Flat vs Reducing Rate
Key takeaways
- At the same quoted 10%, the flat EMI is ₹25,000.00 against ₹21,247.04 on reducing balance — ₹3,752.96 more every month for 60 months.
- Flat-rate interest totals ₹5.00 L over the tenure against ₹2.75 L on reducing balance — ₹2.25 L extra.
- A 10% flat quote works out to the same total cost as a 17.27% reducing-balance rate over 5 years.
- Over 10 years instead of 5, the flat method’s extra cost grows to ₹4.14 L (from ₹2.25 L).
Monthly EMI compared
Total interest over the tenure
Same loan, same quoted rate, same tenure — only the method differs.
About the Flat vs Reducing Rate
Two loans can quote the same interest rate yet cost very different amounts, depending on whether the rate is "flat" or "reducing balance". This calculator shows the gap so you can compare loans honestly.
A flat rate charges interest on the full original amount for the whole tenure; a reducing-balance rate charges interest only on the outstanding balance, which falls as you repay. Enter the loan details to see both EMIs side by side.
Frequently asked questions
What is the difference between flat and reducing interest rates?
A flat rate charges interest on the entire original principal for the whole tenure, regardless of how much you have repaid. A reducing-balance rate charges interest only on the outstanding balance, so the interest shrinks as you pay down the loan.
Why does a flat rate cost more than it looks?
Because you keep paying interest on money you have already repaid. A 10% flat rate is roughly equivalent to a 17–19% reducing-balance rate over a typical tenure — so a "low" flat rate can be deceptively expensive.
How do I compare a flat rate to a reducing rate?
Compare the EMIs and total interest directly, as this calculator does, rather than the headline numbers. Never compare a flat-rate figure against a reducing-rate figure — they are not the same thing.
Which loans use flat rates?
Flat rates are common in some car, two-wheeler, consumer-durable and personal loans. Home loans almost always use reducing balance. Always ask which basis a quoted rate uses.
Is reducing balance always better for the borrower?
For the same quoted rate, yes — it costs less interest. The catch is that lenders set different rates for each method, so compare the actual EMI and total cost, not just the headline rate.
Disclaimer: This calculator is for information and education only. It is not investment advice and not a recommendation, and it is not a loan offer. The lender decides the actual interest rate, EMI, fees and eligibility, and whether insurance cover is required, and a floating rate can change during the loan. Charges you did not enter are not included. Every figure is computed solely by applying the formula and assumptions stated on this page to the inputs you entered.