A "10% flat" loan is far more expensive than 10% on a reducing balance. Convert any flat rate into the true rate before you sign.
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Some car, two-wheeler, personal and consumer-durable loans are quoted at a flat rate: interest is charged on the full loan amount for the whole tenure, even though you repay it month by month.
That makes the real (reducing-balance) rate nearly double. This calculator finds the reducing rate that gives the same EMI, so you can compare with a bank loan.
| Loan Amount | ₹500,000 |
| Flat Interest Rate | 10 % p.a. |
| Tenure | 3 yrs |
| Reducing (true) interest rate | 17.92% |
| EMI | ₹18,056 |
| Total interest | ₹1,50,000 |
| Total repayment | ₹6,50,000 |
| Flat rate quoted | 10.00% |
₹18,056; ₹1,50,000.
Try this example →| Loan Amount | ₹200,000 |
| Flat Interest Rate | 12 % p.a. |
| Tenure | 2 yrs |
| Reducing (true) interest rate | 21.57% |
| EMI | ₹10,333 |
| Total interest | ₹48,000 |
| Total repayment | ₹2,48,000 |
| Flat rate quoted | 12.00% |
₹10,333; ₹48,000.
Try this example →No. 10% flat over 3 years equals about 17.9% on a reducing balance. Always compare loans by the reducing rate or APR.
EMI = (loan + loan × flat rate × years) ÷ number of months. For ₹5 lakh at 10% flat for 3 years: (5,00,000 + 1,50,000) ÷ 36 = ₹18,056.
Home loans and most bank loans use reducing rates. Flat rates are more common with dealers, NBFCs and consumer finance.