Calculator
A flat rate looks smaller than a reducing rate for the same loan — see the equivalent reducing rate before you compare.
A 10% flat rate is equivalent to a 17.3% reducing rate.
Equivalent Reducing Rate
17.27%
vs 10.00% flat
Monthly EMI (both methods)
₹12,500
Total Interest (flat method)
₹2,50,000
A flat rate charges interest on the full original principal for the entire tenure, so the quoted number looks smaller than a reducing rate that only charges interest on what's actually still owed. Gold loans, some personal loans, and consumer durable EMIs commonly use flat rates — always ask for the reducing-balance equivalent before comparing.
For the same nominal percentage, yes — reducing-balance interest is always cheaper because it shrinks as you pay down the loan. The comparison only makes sense once you convert one rate type to the other, which is exactly what this calculator does.
Over a longer tenure, more of a reducing-rate loan's balance has already been paid down by the time you're deep into it, so the equivalent reducing rate needs to be higher to match the same flat-method EMI. Shorter tenures have a smaller gap between the two rates.
A reducing (or "diminishing") balance rate charges interest only on what you still owe, so the interest amount shrinks every month as you pay down the principal — this is how home loans and most personal loans work. A flat rate charges interest on the full original amount for the entire tenure, even though you've been paying it down the whole time. The same nominal percentage means something very different depending on which method is used.
Most lenders quote reducing rates for home and personal loans — compare current rates on our loans hub.
Disclaimer: This is an illustrative calculation. Some lenders use slightly different flat-rate conventions (e.g. add-on interest with different compounding); always confirm the exact method with your lender.
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