Flat Rate vs Reducing Balance — The Truth

A "7% flat" loan costs MORE than a "13% reducing" loan. Don't get fooled. See the actual comparison.

⚠️ Flat rate of 7% ≈ Reducing rate of ~13%. Many NBFCs and car dealers quote flat rate to look cheaper.

Enter Loan Details

Loan Amount (₹)

Flat Rate Quoted (% p.a.)

Reducing Rate (% p.a.) — for comparison

Tenure (Years)

EMI₹11,250

Total Interest₹1.75 L

Total Payment₹6.75 L

Effective Rate12.5%

EMI₹11,377

Total Interest₹1.83 L

Total Payment₹6.83 L

Actual Rate13%

⚠️ Flat Rate saves you Rs.7,620 (rare!)

Flat 7% = Effective 12.5% reducing. The flat rate is -4% more expensive than it looks.

Month	Flat: Interest	Flat: Principal	Reducing: Interest	Reducing: Principal
1	2,917	8,333	5,417	5,960
2	2,917	8,333	5,352	6,025
3	2,917	8,333	5,287	6,090
4	2,917	8,333	5,221	6,156
5	2,917	8,333	5,154	6,223
6	2,917	8,333	5,087	6,290
7	2,917	8,333	5,019	6,358
8	2,917	8,333	4,950	6,427
9	2,917	8,333	4,880	6,497
10	2,917	8,333	4,810	6,567
11	2,917	8,333	4,739	6,638
12	2,917	8,333	4,667	6,710
13	2,917	8,333	4,594	6,783
14	2,917	8,333	4,520	6,857
15	2,917	8,333	4,446	6,931
16	2,917	8,333	4,371	7,006
17	2,917	8,333	4,295	7,082
18	2,917	8,333	4,219	7,158
19	2,917	8,333	4,141	7,236
20	2,917	8,333	4,063	7,314
21	2,917	8,333	3,983	7,394
22	2,917	8,333	3,903	7,474
23	2,917	8,333	3,822	7,555
24	2,917	8,333	3,740	7,637
25	2,917	8,333	3,658	7,719
26	2,917	8,333	3,574	7,803
27	2,917	8,333	3,490	7,887
28	2,917	8,333	3,404	7,973
29	2,917	8,333	3,318	8,059
30	2,917	8,333	3,230	8,147
31	2,917	8,333	3,142	8,235
32	2,917	8,333	3,053	8,324
33	2,917	8,333	2,963	8,414
34	2,917	8,333	2,872	8,505
35	2,917	8,333	2,779	8,598
36	2,917	8,333	2,686	8,691
37	2,917	8,333	2,592	8,785
38	2,917	8,333	2,497	8,880
39	2,917	8,333	2,401	8,976
40	2,917	8,333	2,304	9,073
41	2,917	8,333	2,205	9,172
42	2,917	8,333	2,106	9,271
43	2,917	8,333	2,005	9,372
44	2,917	8,333	1,904	9,473
45	2,917	8,333	1,801	9,576
46	2,917	8,333	1,698	9,679
47	2,917	8,333	1,593	9,784
48	2,917	8,333	1,487	9,890
49	2,917	8,333	1,380	9,997
50	2,917	8,333	1,271	10,106
51	2,917	8,333	1,162	10,215
52	2,917	8,333	1,051	10,326
53	2,917	8,333	939	10,438
54	2,917	8,333	826	10,551
55	2,917	8,333	712	10,665
56	2,917	8,333	596	10,781
57	2,917	8,333	480	10,897
58	2,917	8,333	362	11,015
59	2,917	8,333	242	11,135
60	2,917	8,333	122	11,255

Interest = Principal × Rate × Years (calculated on FULL principal, even after partial repayment)

You pay interest on ₹10L for ALL 5 years, even though by year 3 you've already repaid ₹6L!

Interest each month = Outstanding Balance × Monthly Rate

Interest reduces every month as you pay back principal. Fair and transparent.

Flat Rate × 1.8 ≈ Equivalent Reducing Rate

Always ask: "Is this flat or reducing?" before signing any loan.