Flat vs Reducing Interest Rate Calculator
Discover the true effective APR hidden inside flat-rate loan offers from banks and NBFCs. Compare monthly EMIs, total interest paid, and see the exact extra cost of flat-rate financing.
Loan Parameters
Paying a 8.5% flat rate for 60 months is mathematically equivalent to borrowing at a 14.92% reducing interest rate.
Frequently Asked Questions
What is the fundamental difference between flat rate and reducing balance loans?
In a flat rate loan, interest is calculated on the entire original principal for the entire loan tenure, ignoring the fact that you repay principal every month. In a reducing balance loan, interest is charged only on the remaining outstanding principal balance.
Why is an 8% flat rate actually equal to ~14% to 15% reducing rate?
Because the average principal outstanding over the loan tenure is roughly half the initial amount. Since flat interest is computed on the 100% principal throughout, the effective annual percentage rate (APR) ends up being roughly 1.7 to 1.9 times the nominal flat rate.
Which loan types commonly use flat rates in India?
Used car loans, consumer electronics zero-cost EMI schemes with processing surcharges, two-wheeler finance, and unorganized NBFC personal loans often quote flat rates to appear deceptively cheap.