Flat vs Reducing Interest Calculator

Compare the true cost of a flat-rate loan with a reducing-balance loan.

Last reviewed: 27 Sept 2026

For FY 2026-27 · India

Loan amount₹

Amount borrowed.

Quoted flat rate%

Flat rate per year.

Tenureyears

Loan tenure.

Quick examples

Equivalent reducing rate17.92%

A 10% flat rate on ₹5,00,000 for 3 years.

Flat-rate interestReducing-rate interest

What you are seeing: Flat interest stays at ₹50,000 a year, while reducing interest at the same rate falls each year.

Flat-rate EMI₹18,056

Equivalent reducing rate17.92%

Flat total interest₹1,50,000

Reducing interest at the same rate₹80,809

What each result means

Flat-rate EMI

What it is: (P + P × r × y) ÷ months.

Your value: ₹18,056

Interest charged on the full amount throughout.

Equivalent reducing rate

What it is: Reducing-balance rate that gives the same EMI.

Your value: 17.92%

Usually close to double the flat rate.

Flat total interest

What it is: P × r × y.

Your value: ₹1,50,000

What you pay on the flat loan.

Reducing interest at the same rate

What it is: Interest if the quoted rate were on a reducing balance.

Your value: ₹80,809

For comparison.

Year-by-year breakdown

Flat vs Reducing Interest Calculator year-by-year schedule
Year	Flat interest (₹)	Reducing interest (₹)	Flat balance owed (₹)	Reducing balance (₹)
1	₹50,000	₹43,232	₹4,33,333	₹3,49,629
2	₹50,000	₹27,486	₹2,16,667	₹1,83,512
3	₹50,000	₹10,091	₹0	₹0

How to read this: flat interest is the same every year; reducing interest falls as the balance is repaid.

What this calculator does

This calculator converts a flat interest rate into the equivalent reducing-balance rate, and compares the interest paid under each method.

What your result means

A flat rate looks lower than it is because interest is charged on the full loan even as you repay it. RBI's Key Facts Statement rules require lenders to disclose the Annual Percentage Rate (APR).

Formula

1. Flat-rate EMI

EMI_flat = (P + P × r × y) ÷ (12y)

Symbols

r: Flat rate (decimal)

2. Equivalent reducing rate

Solve for i: EMI_flat = P × i × (1 + i)ⁿ ÷ [(1 + i)ⁿ − 1]; rate = 12i

Symbols

n: Months

Why this formula works

Found numerically by bisection.

Worked example

₹5,00,000 at 10% flat for 3 years → EMI ₹18,056 → reducing rate ≈ 17.92%.

Working for your numbers

EMI_flat = (₹5,00,000 + ₹1,50,000) ÷ 36 = ₹18,056
Bisection: reducing rate giving the same EMI = 17.918%

Frequently asked questions

Why does the flat rate cost more?

You pay interest on money you have already repaid.

When should I talk to a professional instead?

Before a real decision, especially a large or long-term one, speak to a SEBI-registered investment adviser or a qualified professional. This page is educational only.

Symbols and assumptions

P: Loan
r: Flat rate
y: Years

The rate stays fixed for the whole tenure.
EMIs are paid at the end of every month.
Processing fees, insurance and GST on fees are not included.

Sources and review

Reviewed 2026-09-29 · Next review 2027-09-29

Not investment advice. VIA Capital is not a SEBI-registered investment adviser and this calculator does not recommend any fund, product or investment strategy. Market-linked investments are subject to market risk; assumed returns are not indicative of future results.

Important limitation. This is an educational estimate based solely on the values and formula shown. It is not financial, tax or investment advice. Actual returns will differ from any assumed rate. Verify with a qualified financial professional before making any investment decision.

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