Flat Rate vs Reducing Balance Calculator India — True Interest Cost
Real-World Examples — 2026
9% flat rate 3-year car loan — actual cost
A 9% flat rate on ₹5 lakh for 3 years means interest = 5,00,000 × 9% × 3 = ₹1,35,000. Total payment = ₹6,35,000. EMI = ₹17,639. The equivalent reducing balance rate is approximately 16.6%. This is what you'd pay at a bank for the same loan.
₹2 lakh consumer durable loan at 0% EMI
Zero-cost EMIs are usually flat rate financed by the merchant. A ₹2 lakh TV on 12 EMIs of ₹16,667 at '0% interest' often has a processing fee of ₹3,000–₹5,000 = effective annual cost of 6–10%.
Frequently Asked Questions
What is the difference between flat rate and reducing balance rate?
Flat rate: interest calculated on the original loan amount throughout. Reducing balance: interest calculated only on the outstanding principal, which decreases each month. A 9% flat rate is typically equivalent to 16–17% reducing balance — roughly double. Always insist on reducing balance EMI from banks.
Why do car dealers and consumer loan companies use flat rates?
Flat rates make the loan appear cheaper. '9% interest' sounds better than '16%' even though the actual cost is the same. NBFC and dealer finance often quote flat rates. Banks regulated by RBI typically quote reducing balance (monthly reducing) rates, making comparison straightforward.
How do I convert flat rate to effective reducing balance rate?
Approximate formula: Effective Rate ≈ Flat Rate × 1.8 to 1.9 for 2–3 year tenures. More precise conversion requires IRR calculation. Use our calculator to get the exact reducing balance equivalent for any flat rate.
Is the Flat vs Reducing Rate Calculator free?
Yes, completely free with no registration on CalcPhi.
Are my inputs stored?
No. All calculations run in your browser. We never store your financial data.
Can I use the Flat vs Reducing Rate Calculator on mobile?
Yes. CalcPhi works on all modern smartphones and tablets.