Flat vs Reducing Rate Calculator
Compare EMI and total interest between Flat Rate and Reducing Balance Rate loans side-by-side.
Flat vs Reducing Rate Calculator
You save with Reducing Rate
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FLAT RATE
EMI
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Total Interest
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Total Payment
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REDUCING RATE
EMI
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Total Interest
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Total Payment
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Flat Rate vs Reducing Balance Rate
When taking a loan, the way interest is calculated significantly impacts the total amount you repay. The two primary methods used by banks and NBFCs are the Flat Rate method and the Reducing Balance method. Understanding the difference can save you thousands of rupees.
Flat Interest Rate
Interest is calculated on the full principal amount throughout the entire loan tenure, regardless of how much you've already repaid.
EMI = (P + Total Interest) / (T × 12)
Reducing Balance Rate
Interest is calculated on the outstanding principal balance each month. As you repay, the principal reduces, so the interest component decreases over time.
Example Comparison
For a loan of ₹5,00,000 at 12% p.a. for 5 years:
| Parameter | Flat Rate | Reducing Rate |
|---|---|---|
| Monthly EMI | ₹13,333 | ₹11,122 |
| Total Interest | ₹3,00,000 | ₹1,67,333 |
| Total Payment | ₹8,00,000 | ₹6,67,333 |
Which is Better?
The Reducing Balance method is always cheaper for the borrower because you pay interest only on the remaining principal. Flat rates appear lower but cost much more overall. Flat rates are commonly used for personal loans, car loans, and microfinance, while home loans and credit cards typically use the reducing balance method.