Flat vs Reducing Rate Calculator

About This Calculator

This calculator helps you compare two different methods of calculating loan interest:

  • Flat Rate: Interest calculated on the original principal amount
  • Reducing Balance: Interest calculated on the outstanding principal

Reducing balance method typically results in lower total interest payments.

Formulas Used
Flat Rate:

Interest = (Principal × Rate × Time) ÷ 100

Reducing Balance:

EMI = P × r × (1+r)^n ÷ ((1+r)^n - 1)

Frequently Asked Questions

Flat rate interest is calculated on the original principal amount throughout the loan tenure, while reducing balance interest is calculated only on the outstanding principal amount. This means with reducing balance, your interest component decreases over time as you pay down the principal.

Reducing balance method is generally better for borrowers as it results in lower total interest payments over the loan tenure. While the EMI might be slightly higher initially, the total cost of borrowing is significantly lower compared to flat rate interest.

The savings depend on your loan amount, interest rate, and tenure. Generally, you can save 15-30% of the total interest amount by choosing reducing balance over flat rate. Use our calculator to see exact savings for your specific loan parameters.

Flat rate interest is simpler to calculate and understand, making it attractive for short-term loans or for borrowers who prefer predictable payments. Some lenders also use it because it generates higher interest income compared to reducing balance method.

Our calculator uses standard financial formulas and provides accurate results based on the inputs you provide. However, actual loan terms may vary slightly due to processing fees, prepayment options, or other charges that may apply. Always check with your lender for exact terms.

Make Informed Loan Decisions

Understanding the difference between flat rate and reducing balance interest can save you thousands of rupees over your loan tenure. Our comprehensive calculator helps you compare both methods side-by-side, showing you exactly how much you can save by choosing the right interest calculation method.

Accurate Calculations

Precise EMI and interest calculations using industry-standard formulas

Detailed Comparison

Side-by-side comparison of both interest methods with yearly breakdown

Save Money

Discover how much you can save by choosing the right interest method

Whether you're planning to take a home loan, car loan, or personal loan, understanding these interest calculation methods is crucial for making the best financial decision. Our calculator provides instant results with detailed breakdowns, helping you negotiate better terms with lenders and choose the most cost-effective loan option.