Flat vs Reducing Balance EMI Calculator

A flat rate charges interest on the full original principal for the entire tenure, even though you keep paying it down. A reducing-balance rate charges interest only on the outstanding balance each month — so as you repay, your interest component shrinks. For the same headline rate, flat is significantly more expensive.

A flat rate of X% roughly equals a reducing-balance rate of 1.7×–2× X% over typical tenures. For example, a 10% flat rate auto loan over 5 years works out to roughly an 18% reducing-balance APR. Use the calculator above to get the exact effective rate for your tenure.

A 10% flat rate sounds cheaper than the equivalent ~18% reducing rate, even though the customer pays more. RBI rules require home loans, personal loans, and credit cards from banks to be quoted on a reducing-balance basis, but auto-loan dealer schemes, consumer-durable EMIs, and many NBFCs still advertise flat rates.

Often yes. Flat-rate offers commonly bundle a non-refundable processing fee (1-3% of principal), GST on interest, dealer documentation charges, and insurance cross-sells. Always ask for the APR and the total amount payable in writing before signing.

Almost never on like-for-like terms. The only legitimate case is a heavily subvented "0% EMI" or "no-cost EMI" promo where the merchant absorbs the interest cost — verify the invoice price matches the cash price before assuming it is genuinely zero-cost.