Flat vs Reducing Rate Calculator
Two-wheeler and consumer loans quote flat rates that look half as expensive as they are; this converter shows the honest reducing balance equivalent.
Instant conversion Extra interest in rupees The 1.8x rule
Loan amountRs. 1,00,000
Flat rate quoted10% p.a. flat
Tenure36 months
A 10% flat rate really means
17.92% p.a.
on reducing balance, the way banks quote personal and home loans
EMI at 10% flat
Rs. 3,611
Total interest, flat method
Rs. 30,000
Interest if 10% were reducing
Rs. 16,162
Extra you pay for the word flat
Rs. 13,838
Rule of thumb: reducing equivalent is roughly 1.8x the flat rate on typical tenures. Here, 10% flat equals 17.92% reducing over 36 months. Flat rates charge interest on the full Rs. 1,00,000 for the entire tenure, even though your outstanding falls every month. Always ask for the rate on reducing balance and the APR from the Key Fact Statement before signing.
KharchaUdhar Insider Tip Flat rate quotes cluster in two-wheeler showrooms, consumer durable counters and gold loan NBFCs, exactly where buyers decide in minutes. A 9.5% flat two-wheeler loan is an 17 to 18% reducing loan. If the salesperson cannot tell you the reducing balance rate, the Key Fact Statement they must hand you under RBI rules will.
Reducing equivalent is solved so both methods produce the same EMI. Actual APR also includes processing fees. Indicative only.
KharchaUdhar Insider Tip Every lender must now hand you a Key Fact Statement showing the APR before you sign. If a showroom quotes only a flat rate and cannot produce the KFS number, walk to the finance desk and ask for it by name; the reducing rate printed there is the one this calculator estimates, and quoting the regulation usually ends the rate theatre immediately.