Flat vs Reducing EMI Calculator
Uncover the real cost of loans. Compare quoted Flat Interest Rates against True Reducing Balance Rates and discover your actual APR before signing any loan agreement.
* Interest is charged on the initial ₹5,00,000 for all 36 months, ignoring your monthly principal repayments.
* Interest is calculated only on the remaining unpaid loan balance every month as mandated by the RBI for transparent bank loans.
A 8.5% Flat Rate is actually equal to a 15.4% Reducing Rate!
Never accept a loan based on flat rate quotes alone. In this ₹5,00,000 loan, choosing a flat rate loan makes you pay an extra ₹59,276 in unnecessary interest.
Why Do Lenders Quote Flat Rates Instead of Reducing Rates?
Dealers, auto financiers, and private NBFCs frequently use flat interest rates as a marketing gimmick because a "8% Flat Rate" sounds much cheaper than an institutional "14.5% Reducing Rate". In reality, the 8% flat loan costs you significantly more money!
1What is a Flat Interest Rate?
In a flat rate loan, interest is calculated on the entire original principal throughout the loan tenure. Even when you have repaid 90% of the loan amount, you are still being charged interest on 100% of the original amount.
2What is a Reducing Balance Rate?
In a reducing balance loan (standard with banks like HDFC, SBI, ICICI), interest is calculated each month only on the remaining unpaid principal. As your loan balance shrinks every month, the interest portion decreases.