Flat to Reducing Rate Calculator
Dealers often quote a flat rate. This converts it to the reducing-balance rate banks compare on.
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Flat rate vs reducing rate
A flat rate charges interest on the full original loan amount for the entire tenure, even though you repay part of it every month. A reducing-balance rate charges interest only on what you still owe. The same number means very different costs: a flat rate is usually about 1.7 to 1.9 times as expensive in real terms for typical tenures.
Always compare loans on the reducing-balance rate, or on the EMI for the same amount and tenure.
Frequently asked questions
How do I convert a flat rate to a reducing rate?
Compute the flat-rate EMI (principal plus total flat interest, divided by months), then find the monthly rate that gives the same EMI under the reducing-balance formula. This calculator does that for you.
Which is cheaper: 8% flat or 14% reducing?
About the same for a 3-year loan. An 8% flat rate is roughly 14–15% reducing, so compare on the same basis.
Why do dealers quote flat rates?
Flat rates look smaller. Always ask for the reducing-balance rate or the total amount you will repay.