Flat vs Reducing Interest Converter

A flat rate sounds cheap but costs much more. See the real yearly rate.

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Flat vs Reducing Interest Converter

The true yearly rate behind a flat rate

Loan amount

₹

Flat interest rate (per year)

Tenure

months

Processing fee

Taken from the loan amount up front. Raises the all-in rate.

True rate (reducing balance)14.68%15.71% effective yearly

Monthly EMI₹4,833.33

Total interest₹16,000

Total paid₹1,16,000

Same loan, two ways to quote the rate (%)

How it works

A flat rate charges interest on the original loan amount for the whole tenure. A reducing-balance rate charges interest only on what you still owe. So the same number is much cheaper as a reducing rate; this tool shows the rate that gives the same EMI.

Flat 8% is really about 14.7%
A flat rate charges interest on the full loan for the whole term, even though you repay part of it every month. The true rate is usually close to twice the flat rate.

Interest = loan × flat rate × years = ₹1,00,000 × 8% × 2 = ₹16,000.
EMI = (loan + interest) ÷ months = ₹1,16,000 ÷ 24 = ₹4,833.33.
True rate: the yearly rate on the reducing balance at which that EMI repays the loan in 24 months = 14.68% (found by solving EMI = P·r·(1+r)ⁿ ÷ ((1+r)ⁿ − 1) for monthly rate r, then × 12).

Always compare loans by the reducing-balance (or all-in APR) rate, never the flat rate.
Ask the lender for the Key Facts Statement; it must show the APR.
Add the processing fee: it raises your true cost.

Flat EMI = (loan + loan × flat rate × years) ÷ months. The true rate is the monthly rate at which these EMIs have a present value equal to the amount received, solved numerically and multiplied by 12 (nominal) or compounded (effective). Under RBI's Key Facts Statement directions (circular DOR.STR.REC.13/13.03.00/2024-25, 15 April 2024, rbi.org.in) lenders must disclose the APR computed on the reducing-balance (IRR) basis, including charges; the all-in rate here counts the processing fee you enter.

Preparing tool

How to use Flat vs Reducing Interest Converter

Choose Flat to reducing, or Reducing to flat.
Enter the loan amount, the rate and the tenure in months, plus any processing fee.
Compare the true rate, EMI and total interest, then copy or share them.

Read the detailed guide →

What are the limits of Flat vs Reducing Interest Converter?

Assumes equal monthly EMIs paid at the end of each month and no prepayment. The all-in rate counts only the processing fee you enter; insurance and other charges are not included. Your lender's own quote is final. Nothing you enter leaves your device.