Flat vs. Reducing Interest Calculator
Compare a flat-rate loan with a reducing-balance loan and
see the real interest rate behind a flat quote.
Flat vs. Reducing Interest Calculator
Effective Reducing Rate of the Flat Loan
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Flat EMI
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Flat Total Interest
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Reducing EMI
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Reducing Total Interest
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Extra Interest Paid on Flat Loan
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Assumptions & method
Flat-rate method: total interest = loan × flat rate × years, charged on the original amount for the whole term. EMI = (loan + total interest) ÷ number of months.
Reducing-balance method: interest each month = outstanding balance × (annual rate ÷ 12). EMI = P × r ÷ (1 − (1 + r)−n), with payments at month-end.
Effective reducing rate: the monthly rate r that makes the reducing-balance EMI equal to the flat-rate EMI, found numerically by bisection. It is shown as a nominal annual rate (r × 12, monthly compounding), with the effective annual rate (EAR) beneath. Fees and charges are excluded, so results are estimates.
Flat vs. Reducing Comparison
| Measure | Flat-rate loan | Reducing-balance loan |
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Flat Rate to Effective Reducing Rate (Same Loan and Tenure)
| Flat Rate | EMI (₹) | Effective Rate | EAR |
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What is the difference between flat and reducing interest?
With a flat rate, interest is calculated on the full original loan for the entire term, even though you repay part of the principal every month. With a reducing-balance rate, interest is charged only on what you still owe, so it falls as the balance falls. Because of this, a flat rate of 8% costs far more than a reducing rate of 8%, and its true cost is roughly 1.7 to 1.9 times the quoted figure for typical tenures. To compare fairly, convert the flat quote into the reducing rate that gives the same EMI. This calculator solves for that rate numerically and shows how much extra interest the flat structure costs over the term.