Flat vs Reducing Rate Calculator
Compare flat interest rate vs reducing balance rate — see the real cost difference.
Results
Flat Rate
14%
Equivalent Reducing Rate
24.40%
Key insight
A flat rate of 14% is equivalent to approximately 24.40% on a reducing balance basis — nearly 1.7x higher than it appears.
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What is the difference between flat rate and reducing balance rate?
In India, many personal loan agents and NBFCs quote interest rates on a flat rate basis because it sounds lower. A flat rate charges interest on the entire original principal throughout the loan tenure, even as you repay it. A reducing balance (diminishing balance) rate charges interest only on the outstanding principal after each payment — which is the method used by banks and mandated by RBI for transparent disclosures.
A flat rate of 14% on a 3-year loan is effectively close to 26% on a reducing balance basis. This is nearly double what it appears. RBI requires lenders to disclose the Annualised Percentage Rate (APR) on an equated instalment basis, but many informal lenders and some chit fund operators still quote flat rates. Always ask for the reducing balance equivalent before accepting any loan offer.
Consumer durable loans, two-wheeler loans, and personal loans from NBFCs are common places where flat rates appear in India. If someone offers you a "0% EMI scheme" or a "low flat rate", use this calculator to find the true cost. The difference can be lakhs over a multi-year loan.