Flat vs Reducing Rate Calculator
Compare EMI, total interest, and total repayment under flat and reducing balance interest methods.
Flat rate
Reducing bal Rate
Flat vs Reducing Rate Calculator
A Flat vs Reducing Rate Calculator helps you compare loan interest calculated using the flat rate method versus the reducing balance method.
While loans with flat interest rates may appear cheaper at first glance, reducing rate loans usually cost less over the full tenure. This calculator helps borrowers clearly understand the real cost difference between the two.
What Is a Flat vs Reducing Rate Calculator?
This calculator is an online tool that compares:
- EMI under flat interest rate method
- EMI under reducing balance method
- Total interest payable in both cases
- Total amount payable over the loan tenure
It is especially useful for personal loans, car loans, and consumer loans where lenders often quote flat interest rates.
How Does the Calculator Work?
The calculator uses common loan inputs such as:
- Loan amount
- Interest rate
- Loan tenure
Based on these inputs, it calculates and compares the loan cost using both flat rate and reducing balance interest methods.
Flat vs Reducing Rate – Example
Let’s understand the difference between flat and reducing interest rates using a simple loan example.
- Loan Amount: ₹5,00,000
- Loan Tenure: 5 years
- Interest Rate: 10% per annum
Flat Interest Rate
- Total Interest: ₹2,50,000
- Total Amount Payable: ₹7,50,000
- Approx. EMI: ₹12,500
Reducing Balance Interest Rate
- Total Interest: ₹1,37,000 (approx.)
- Total Amount Payable: ₹6,37,000 (approx.)
- Approx. EMI: ₹10,620
Result: Even with the same interest rate, a reducing balance loan costs significantly less than a flat rate loan over the same tenure.
Frequently Asked Questions (FAQs)
What is a flat interest rate?
In a flat interest rate method, interest is calculated on the full loan amount for the entire loan tenure, regardless of repayments made.
What is a reducing balance interest rate?
In the reducing balance method, interest is calculated on the outstanding loan amount after each EMI payment, resulting in lower total interest.
Which is better: flat or reducing rate?
In most cases, reducing balance interest rates are more economical and result in lower total interest compared to flat rates.
Why do lenders offer flat interest rates?
Flat rates are simpler to explain and may appear lower, but they usually result in higher overall loan cost.
Is EMI the same in both methods?
EMIs may appear similar initially, but the interest calculation method significantly impacts the total amount payable.
Is this calculator accurate?
The calculator provides estimates based on standard formulas. Actual loan figures may vary depending on lender-specific terms.