Total loan sanctioned
Quoted flat rate by lender
Repayment period
🔶 Flat Rate Method
Monthly EMI₹0
Total Interest₹0
Total Paid₹0
Effective Annual Rate~0%
🔷 Reducing Balance (Equivalent)
Monthly EMI₹0
Total Interest₹0
Total Paid₹0
Rate to Match Flat EMI~0%
Flat Rate vs Reducing Balance — Year-wise Breakdown
| Year | Flat EMI (Monthly) | Flat Interest Paid | Reducing EMI (Monthly) | Reducing Interest Paid |
|---|
What is Flat Rate Interest?
Under the Flat Rate Method, interest is calculated on the original full principal for
the entire tenure, regardless of how much you have repaid. The formula is:
EMI = (Principal + Total Flat Interest) ÷ Number of Months
Why is Flat Rate More Expensive?
With a reducing balance loan, each monthly payment reduces the principal on which interest is calculated. With flat rate, you pay interest on the full original amount throughout — making the effective cost nearly 1.8–1.9x the quoted flat rate.
For example, a loan at 10% flat is equivalent to approximately 18–19% p.a. reducing balance. This is why most Indian banks have switched to the reducing balance method.
Which Loans Still Use Flat Rate?
- Two-wheeler / bike loans from some dealers and NBFCs
- Consumer durable loans (appliances financed by retailers)
- Some old gold loan schemes