Flat vs Reducing Rate Calculator: Find the Real Interest Rate
Some lenders quote a flat rate that looks low. Enter it with the loan amount and tenure to see the reducing-balance rate that gives the same EMI.
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Equal reducing-balance rate
17.92%
- Monthly EMI
- ₹18,056
- Total interest
- ₹1,50,000
Both rates give the same EMI. Compare loans using the reducing rate (APR), as RBI asks lenders to show it.
Show working
- Interest = 500000 × 10% × 3.00 = ₹150000.00
- EMI = (500000 + 150000.00) ÷ 36 = ₹18055.56
- Reducing rate with the same EMI = 17.92%
How to use
- Choose whether you know the flat rate or the reducing rate.
- Enter the loan amount, the rate quoted and the tenure.
- Read the equal rate, the EMI and the total interest.
Good to know
With a flat rate, interest is charged on the full loan for the whole tenure even though you repay part of it every month. With a reducing rate, interest is charged only on what you still owe. So the same number means very different costs.
To convert, the calculator finds the flat EMI, (loan + loan × flat rate × years) ÷ months, then searches for the reducing rate whose standard EMI is exactly the same. A 10% flat rate for 3 years equals about 17.9% reducing.
Flat rates are common for two-wheeler, consumer durable and some car and microfinance loans. RBI requires lenders to show the annualised rate (APR) in the key fact statement, which is a reducing-basis rate including fees, so use it to compare offers.
Questions
Why is the flat rate misleading?
Because interest is charged on money you have already repaid. The real cost is nearly double the flat rate for typical tenures.
Is there a quick rule to convert?
Roughly reducing ≈ 1.6 to 1.9 × flat for 1–5 year loans. Use the calculator for an exact figure.
Which rate do banks use for home loans?
Home loans and most bank loans use the reducing-balance method.
Is the EMI the same in both methods?
Yes, at the equivalent rates shown here the EMI and total interest are identical.
Is my data stored?
No. All calculations stay on your device.