Flat vs Reducing Rate Calculator
Finance & InvestmentA 10% flat loan is really about 18%. See what a flat rate actually costs before you sign.
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A flat rate charges interest on the whole original amount for the entire term, even though most of it has been repaid long before the end. A reducing rate charges only on what is still outstanding. The same headline number therefore means very different things — and a flat rate is worth roughly 1.8 times its stated value, which is precisely why some lenders quote it. This converts a flat quote into the reducing rate it actually behaves like.
What people do next
Features
- Converts any flat rate into its equivalent reducing-balance rate.
- Shows the instalment and total interest on the flat quote.
- Compares it against the same headline rate quoted properly.
- Puts a rupee figure on what the flat basis costs you.
How to use the Flat vs Reducing Rate Calculator
- 1Enter the loan amount.
- 2Enter the flat rate you have been quoted.
- 3Set the term.
- 4Read the equivalent reducing rate — that is the number to compare against other offers.
Frequently asked questions
What is the difference between flat and reducing interest?
A flat rate applies to the original principal for the whole term, so you keep paying interest on money you have already repaid. A reducing rate applies only to the outstanding balance, which falls with every instalment. On the same headline number the flat loan costs far more — which is why home loans are quoted reducing and consumer loans often are not.
How do I convert a flat rate to a reducing rate?
There is no simple multiplier, though roughly 1.8 times is a decent mental shortcut over ordinary tenures. Properly it is found by working out the instalment the flat quote produces, then solving for the reducing rate that would give the same instalment — which is what this calculator does.
Is the multiplier always about 1.8?
Close, but it is not constant, and it does not simply rise with the term. It peaks at around two to three years and eases on longer loans, because a high reducing rate over a long term produces a large instalment of its own. Across ordinary tenures it stays roughly between 1.6 and 1.85 times. The absolute cost, though, keeps climbing with the term.
Which loans use flat rates?
Car and two-wheeler loans, gold loans, consumer durable finance and many personal loans from smaller lenders. Home loans are almost always reducing. If a quoted rate looks unusually good for the product, asking which basis it is quoted on is the single most useful question you can put.
What else should I check besides the rate?
Processing fees, insurance bundled into the loan, prepayment charges and whether the rate is fixed or floating. A flat quote with a low processing fee can still beat a reducing quote with a high one, and this calculator deliberately ignores fees — it compares the interest basis alone.