Compare flat and reducing balance interest rates to understand the true cost of your loan
Flat interest rate is calculated on the initial loan amount throughout the tenure. The EMI remains constant, but the effective interest rate is higher than the stated rate.
Reducing balance rate is calculated on the outstanding loan amount, which decreases with each EMI payment. This method results in lower total interest payment compared to flat rate.
- Flat rate appears lower but costs more
- Reducing balance is the standard method used by banks
- EMI calculation differs in both methods
- Effective interest rate is higher in flat rate
Always prefer loans with reducing balance rate as they are more economical in the long run. Be cautious of loans advertised with flat rates as they may seem cheaper but actually cost more.
The Flat vs Reducing Rate Calculator is a tool that helps users compare the interest rates of flat and reducing balance loans. It calculates the total interest paid over the loan tenure and compares the two methods.
Follow these steps to use the Flat vs Reducing Rate Calculator:
Yes, you can use the Flat vs Reducing Rate Calculator for multiple loans. Simply list them in the order of smallest to largest.