Flat vs Reducing: True Cost

Q: How do I convert flat rate to reducing?

Rough rule: reducing approximately equals flat times 2n/(n+1), where n is tenure in months.

Q: Why do dealers quote flat rates?

Because 9–12% flat sounds cheap next to 14–16% reducing while costing the same or more.

Last updated: September 2026.

Loan amount

₹

Tenure (years)

Tenure (months)

Flat rate quoted (% p.a.)

Reducing rate (% p.a.)

Flat offer

₹18,889/mo

Total: ₹6,80,000 · Interest: ₹1,80,000

Reducing offer

₹17,089/mo

Total: ₹6,15,197 · Interest: ₹1,15,197

Verdict

Reducing wins

by ₹64,803

Flat: EMI = (P + P × r × T) ÷ n · Reducing: EMI = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), r = monthly rate, n = months

How to use this comparator

Enter the loan amount and tenure once — it applies to both sides.
Type the agent's flat rate on the left and the bank's reducing rate on the right.
The verdict line tells you which is truly cheaper and by how much.

What is this tool?

Some lenders quote flat interest rates that look cheap but cost far more than reducing-balance rates. This comparator puts any flat offer side by side with a reducing offer on the same loan. Use it whenever anyone quotes a flat rate — especially used-car and gold loans.

The flat-rate trick, exposed

Flat rate charges interest on the ORIGINAL principal for the whole tenure — even after you've repaid half. Reducing balance charges only on what you still owe. That's why 12% flat costs about the same as 21% reducing over 3 years.

Flat quotes hide in used-car loans, gold loans, consumer-durable finance and informal lending. If anyone quotes flat, convert before comparing.

Ask for the APR or Key Fact Statement. A reducing rate on paper is the only number that compares fairly.

Read the full Real Loan & EMI Guide →

This tool gives an estimate for guidance only. It is not financial advice. Confirm rates with your bank or RBI before deciding.

Common flat-rate questions

How do I convert flat rate to reducing?

Rough rule: reducing ≈ flat × 2n/(n+1), where n is tenure in months. A 3-year 12% flat loan ≈ 21% reducing. Use the comparator above for exact numbers.

Why do dealers quote flat rates?

Because 9–12% flat sounds cheap next to 14–16% reducing — while costing the same or more. Always ask: flat or reducing?

Is flat rate ever better?

Almost never at equal numbers. It only wins if the flat offer's total outflow is genuinely lower — which this page will show you.