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Flat vs reducing rate calculator

A flat rate charges interest on the full amount for the whole tenure, so it costs far more than a reducing rate at the same number: 10.00% flat over 36 months is about 17.92% on a reducing balance. Enter your quote to see its true cost.

Try it now

Compare a flat and a reducing rate

Say how the rate was quoted, then enter the loan. The boxes open on an example.

The rate I was quoted is

A flat rate

A reducing rate

Loan amount ₹

Interest rate quoted % a year

Tenure months

Processing fee, optional % of the loan

Deducted at disbursal. Adds to the APR.

Same cost as a reducing rate of 17.92%

These are the example figures. Change any box to use your own.

The same number, charged two ways
	Flat	Reducing
EMI a month	₹36,111	₹32,267
Total interest	₹3,00,000	₹1,61,619
Total repaid	₹13,00,000	₹11,61,619

Extra interest on the flat basis: ₹1,38,381
APR of the quote, with the fee: 17.92%

Arithmetic on the figures you enter. The lender's Key Facts Statement shows the APR it actually charges.

How it is calculated

The flat and reducing rate formulas

P is the loan amount, n the tenure in months, and r the yearly rate divided by 12 and by 100.

Flat rate

interest = P × rate × years

EMI = (P + interest) ÷ n

Interest is charged on the full amount for the whole tenure, even after most of it is repaid.

Reducing rate

EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

Each month's interest is charged on the balance still owed, so it falls as you repay.

Equivalent rate and APR

The equivalent reducing rate is the one that gives the same EMI over the same tenure. The APR is the yearly rate at which the money you receive after fees equals the present value of every EMI. Both are found by search, to two decimals.

Where the rules come from

Where each figure on this page comes from
Figure	Source	Checked
EMI on a reducing balance	Standard loan EMI formula	02-Oct-2026
A Key Facts Statement for business term loans sanctioned from 01-Oct-2024	RBI notification, 15-Apr-2024	02-Oct-2026
The APR in the Key Facts Statement includes all charges, not just interest	RBI notification	02-Oct-2026

Worked example

Worked example: ₹10,00,000 over 36 months at 10.00%

Flat and reducing rate worked step by step
Step	Working	Result
Flat interest	₹10,00,000 × 10.00% × 3 years	₹3,00,000
Flat EMI	(₹10,00,000 + ₹3,00,000) ÷ 36	₹36,111
Reducing EMI	The EMI formula at 10.00%	₹32,267
Reducing interest	₹32,267 × 36 minus ₹10,00,000	₹1,61,619
Reducing rate with the flat EMI	The rate whose EMI is ₹36,111	17.92%
APR with a 2.00% fee	You receive ₹9,80,000 and pay ₹36,111 for 36 months	19.38%

The same "10.00%" costs ₹3,00,000 in interest when it is flat and ₹1,61,619 on a reducing balance. Read the other way, 10.00% on a reducing balance is the same as about 5.39% flat.

Know the limits

Limits of this calculator

It assumes equal monthly instalments from the first month, with no moratorium.
The APR here counts only the processing fee you enter. A lender's APR also counts every other charge it levies.
The rate is held for the whole tenure. A floating rate can change.
For a full schedule on a reducing balance, use the business loan EMI calculator.

Good to know

Questions and answers

Straight answers on the method, the sources and what the numbers do and do not mean.

What is the difference between a flat rate and a reducing rate?

A flat rate charges interest on the full loan amount for the whole tenure, even as you repay it. A reducing rate charges interest only on what you still owe each month. At the same headline number, a flat rate costs much more.

How do I convert a flat rate to a reducing rate?

Find the reducing rate that gives the same EMI over the same tenure. On ₹10,00,000 over 36 months, a 10.00% flat rate is the same cost as a reducing rate of about 17.92%. The equivalent changes with the tenure, so work it out for each quote.

Which costs more, a flat rate or a reducing rate?

A flat rate, at the same number. On ₹10,00,000 over 36 months at 10.00%, the flat rate costs ₹3,00,000 in interest against ₹1,61,619 on a reducing balance.

How is the EMI worked out on a flat rate?

Add the flat interest for the whole tenure to the amount and divide by the number of months. In the example, (₹10,00,000 + ₹3,00,000) ÷ 36 = ₹36,111 a month.

What is APR and why is it higher than the rate?

APR is the yearly cost of the loan including every charge, not just interest. RBI requires lenders to show it in the Key Facts Statement. In the example, a 2.00% processing fee deducted at disbursal lifts the cost of the 10.00% flat loan to an APR of about 19.38%.

Is a flat rate allowed on business loans?

Lenders can quote rates in different ways, but the Key Facts Statement must show the APR, so you can compare a flat quote with a reducing one on the same basis. Ask the lender for the APR before you sign.

Does this calculator affect my CIBIL score?

No. It makes no credit enquiry and asks for no name, phone number or PAN. CIBIL is the credit bureau whose score and report lenders check. Like every page on this site, it uses the analytics described in our Privacy Policy and Cookie policy.

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Sources

How to read these figures

Capnix is not a lender. Rates, amounts and approvals are decided by lenders. Rates shown here are examples, not offers.

Flat interest: amount × rate × years, a definition.
Reducing balance EMI: the standard EMI formula, a mathematical identity.
Equivalent rates and APR: found by search on the same EMI or cash flows, standard finance arithmetic.
Key Facts Statement and APR: RBI circular of 15-Apr-2024.

Last checked: 02-Oct-2026.

A rate is one number. Lenders read the whole file.

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