Published rates read from the issuer's own pages on 29 September 2026. Every figure in the table is computed, not quoted. We make a money-tracking app; we do not sell either product on this page and we are not financial advisers.
A flat rate charges interest on the original loan amount for the entire term, no matter how much you have repaid. A reducing-balance rate charges interest only on what you still owe, which falls with every instalment. A flat rate therefore costs far more than the same number on a reducing basis: a 10% flat loan is a 17% to 18% reducing loan, depending on the term. The last column of the table below works this out for each term.
| Term | Flat 10% — total repaid | Reducing 10% — total repaid | Extra cost of flat | What the flat rate really is |
|---|---|---|---|---|
| 1 year | ₹5,50,000 | ₹5,27,495 | +₹22,505 | 18.0% reducing |
| 2 years | ₹6,00,000 | ₹5,53,739 | +₹46,261 | 18.2% reducing |
| 3 years | ₹6,50,000 | ₹5,80,809 | +₹69,191 | 17.9% reducing |
| 5 years | ₹7,50,000 | ₹6,37,411 | +₹1,12,589 | 17.3% reducing |
The same Rs 5,00,000 at the same quoted 10%; the only difference is what the 10% is charged on. The last column is the reducing-balance rate that would cost you exactly the same, solved for each term rather than estimated. Computed on 29 September 2026; rounded to the rupee.
There is no clean formula, because it depends on the term, but the multiple is not a constant. It peaks around 1.8 times for a two-year loan and falls as the term lengthens, because a longer flat loan spreads its fixed interest over more instalments. The last column of the table above solves it exactly for each term, by finding the reducing rate whose instalment matches the one the flat loan charges. To do it yourself, take the instalment and the term the lender quotes and solve for the rate that produces it on a reducing basis.
Ask for the annual percentage rate and the full repayment schedule in writing. A quoted flat rate sitting next to a bank reducing rate is not a comparison, and a lender who will not provide the schedule is telling you something.
Usually much less than you expect, and sometimes not at all. Because the interest was calculated on the full amount at the start, paying early often does not reduce it, and some agreements add a foreclosure charge on top. On a reducing-balance loan, every rupee prepaid stops accruing interest immediately.
It can be, if the flat number is low enough. The point is not that flat is always worse — it is that the two numbers are not comparable as quoted. Convert both to the same basis, or compare the total amount repayable, which is the figure that cannot be dressed up.
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