Flat vs Reducing Interest Calculator: Find the Real Interest Rate on Your Loan
Free tool · Updated October 3, 2026 · By CouponTalk · Reviewed by CouponTalk Expert Reviews on
Your result
Enter your measurements to see your result.
Quick answer
A flat rate charges interest on the full loan for the whole tenure, even as you repay it, so it is much more costly than it sounds. A ₹1 lakh loan at a 10% flat rate for 12 months has an EMI of about ₹9,167, which equals a reducing-balance rate of about 18% a year. Always ask for the reducing rate (APR) when comparing loans.
How to use this calculator
- Enter the loan amount and the flat rate you were quoted.
- Enter the tenure in months.
- Optionally add a reducing-rate offer to compare.
Flat rate vs equivalent reducing rate (12 months)
| Flat rate | Reducing rate, 1 year | 2 years | 3 years |
|---|---|---|---|
| 6% flat | 10.9% | 11.1% | 11.1% |
| 8% flat | 14.5% | 14.7% | 14.5% |
| 10% flat | 18% | 18.2% | 17.9% |
| 12% flat | 21.5% | 21.6% | 21.2% |
| 14% flat | 24.9% | 24.9% | 24.4% |
Approximate conversion. Fees and insurance bundled into the loan raise the real rate further.
Frequently asked questions
What is a reducing balance rate?
Interest is charged only on the amount you still owe, so it falls every month. Home, car and most bank loans use it.
Why do some lenders quote flat rates?
Flat rates look lower. A 10% flat rate is roughly an 18% reducing rate for a 1-year loan.
What is APR?
The annual percentage rate includes interest and fees, as a yearly reducing rate. It is the best single number to compare loans.
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