Flat vs Reducing Interest Rate Calculator
A lender quotes you a flat rate. Every other loan you could compare it against is quoted on a reducing balance. This turns one into the other, in either direction, by solving for the rate rather than applying a rule of thumb.
That flat rate is really this reducing rate
17.92%
- Monthly instalment
- ₹18,056
- Total interest
- ₹1,50,000
- Total you repay
- ₹6,50,000
- Effective annual (compounded)
- 19.46%
The comparison every other calculator leads with
| Same 10% quoted as | Instalment | Total interest |
|---|---|---|
| Flat (your quote) | ₹18,056 | ₹1,50,000 |
| Reducing | ₹16,134 | ₹80,809 |
Worth knowing that no lender offers this choice. The same number is never quoted both ways on one product, which is why the figure above the table is the one that matters.
The same 10% flat, across tenures
| Tenure | Really costs | Multiple |
|---|---|---|
| 12 months | 17.97% | 1.80x |
| 24 months | 18.16% | 1.82x |
| 36 months (yours) | 17.92% | 1.79x |
| 48 months | 17.60% | 1.76x |
| 60 months | 17.27% | 1.73x |
| 84 months | 16.66% | 1.67x |
The multiple is not a constant, which is why a rule of thumb like “multiply by 1.8” cannot be right at every tenure. It peaks around eighteen months and falls away on both sides.
Cite this calculator
Using this in an article, a report or a class? Please credit it, and link back so readers can run the numbers themselves.
The Money Decoded. "Flat vs Reducing Interest Rate Calculator." https://themoneydecoded.com/calculators/flat-vs-reducing
The embed drops this calculator straight into your page as a working tool. It is 2400px tall by default and full width, so change the height if your column is much wider or narrower than ours.
The question every other calculator answers
Every flat-versus-reducing tool we could find shows two instalments side by side at the same nominal rate, which is a choice no lender has ever offered anyone. Nobody is quoted 10% flat and 10% reducing on the same product and asked to pick.
We went through the Indian results for this query in September 2026. The calculators on Groww, IIFL, Angel One, Airtel, Piramal Finance and Urban Money all do the same thing, and seven further domains run what is visibly the same syndicated widget, down to an identical stray bracket in the published formula. Every one of them stops at the instalment, the total interest and a line telling you how much you save.
None of them returns the number a borrower holding a flat quote actually needs, which is what that quote is worth on the scale everything else is priced on. That is what sits at the top of the output above.
How the conversion is done
There is no formula that converts a flat rate into a reducing rate, so this solves for it numerically.
- The flat quote fixes your instalment. Total interest is principal times rate times years, so the instalment is simply the whole debt divided by the number of payments.
- The reducing-balance instalment comes from the standard amortising formula, where the monthly rate and the number of months determine the payment.
- Converting means asking which reducing rate produces that same instalment. Inverting the formula for the rate has no algebraic solution, which is why Excel’s
RATEfunction iterates and why internal rate of return is calculated the same way. - This uses bisection over a range from 0% to 200%. The instalment rises strictly with the rate, so bisection cannot overshoot the answer, which a faster method like Newton-Raphson can do on a poor starting guess.
The maths is checked against published worked examples before anything ships, including two cases where a competitor’s own figure fails to reconcile.
Why there is no rule of thumb
The multiple between a flat rate and its reducing equivalent is not a constant, and it does not even move in one direction. Running a 12% flat rate through the solver at each tenure:
| Tenure | 12% flat really costs | Multiple |
|---|---|---|
| 6 months | 20.29% | 1.69x |
| 12 months | 21.46% | 1.79x |
| 18 months | 21.64% | 1.80x |
| 36 months | 21.20% | 1.77x |
| 60 months | 20.31% | 1.69x |
| 120 months | 18.49% | 1.54x |
It climbs to a peak around eighteen months and falls away on both sides. The widely repeated “multiply by 1.8” is close at two of those rows and wrong at the rest. Both pages we found quoting it disclaim it in the same breath, and no institutional source stands behind the figure.
Two published conversions that are wrong
Checking the conversions currently published on ranking Indian pages turned up two that do not survive arithmetic. Both are on large, well-known sites.
- One publishes the formula flat rate = (2 x reducing rate) divided by (1 + tenure in years), and gives the example that a 10% reducing rate over five years equals a 3.33% flat rate. Worked properly, a 10% reducing loan over five years charges interest equal to a 5.50% flat rate. The published answer understates it by more than two percentage points.
- Another tells readers to divide the flat rate by approximately 1.8 to get the reducing equivalent. The reducing figure is always the higher of the two, so the operation is a multiplication. Followed literally, a 10% flat quote becomes 5.6% and a flat loan looks cheaper than the reducing loan it is being compared with.
A third page states that a 12% flat rate equates to an effective 21% without naming a tenure at all, which makes the number impossible to apply to your own loan.
APR is a different number
Converting a rate convention and computing an APR are not the same calculation, and mixing them up will put you at odds with your own loan paperwork.
The Reserve Bank of India defines APR as the annual cost of credit to the borrower which includes interest rate and all other charges associated with the credit facility, and it is worked out on the amount that actually reaches you rather than the amount sanctioned. In RBI’s own illustration, a 15% loan of 20,000 rupees carrying 400 rupees of charges has an APR of 17.07%, because only 19,600 was disbursed.
Switch on the processing fee and GST fields above and this calculator reports that figure separately, and says so. GST applies to the fee, not to the interest.
Since 1 October 2024, under RBI circular RBI/2024-25/18 of 15 April 2024, every covered lender must hand a prospective borrower a standardised Key Facts Statement carrying that APR, together with a computation sheet of annual percentage rate, and the amortisation schedule of the loan over the loan tenor, before the contract is executed. RBI did not prohibit quoting a flat rate. It made sure the flat rate cannot be the only cost figure you are given.
What this calculator does not do
- It does not tell you whether to take the loan. It converts a quote so you can compare it with others.
- It assumes level monthly instalments and no prepayment. For paying extra, see the loan prepayment calculator.
- It does not model insurance premiums bundled into a loan, late-payment charges, or a rate that changes mid-term.
- With the fee fields switched off, the output is a pure rate conversion and excludes all charges, so it will read lower than the APR on your Key Facts Statement.
- It is educational, and not a substitute for reading the loan agreement or asking a qualified professional about your own circumstances.
Pair this with the guide
The companion explainer, What Is Simple Interest? The Formula and the Flat-Rate Trap, covers what simple interest is, how the formula rearranges, and where the flat-rate structure shows up in Indian lending. For the lump-sum sibling, see what compound interest is, and for the difference stated head to head, simple versus compound interest.
Frequently asked questions
What reducing rate is a 10% flat rate?
It depends on the tenure, which is the part most pages leave out. On a three-year loan, 10% flat works out to about 17.92% on a reducing balance. On a two-year loan the same 10% flat is about 18.16%. Over seven years it falls to roughly 16%. There is no single answer because the multiple between the two rates is not a constant: it peaks at around eighteen months and falls away on either side. Enter your own tenure above rather than relying on a figure quoted without one.
How do you convert a flat rate to a reducing rate?
You solve for it, because there is no formula that does it directly. The flat quote fixes your monthly instalment, since total interest is principal times rate times years and the instalment is the whole debt divided by the number of payments. Finding the reducing rate that produces that same instalment means inverting the standard EMI formula for the rate, and that inversion has no closed form. Wikipedia's article on internal rate of return puts it plainly: the value cannot be found analytically, so numerical methods must be used. Excel's RATE function iterates for the same reason. This calculator uses bisection, which cannot miss the answer because the instalment rises strictly with the rate.
Is the flat rate multiplied by 1.8 to get the reducing rate?
It is roughly 1.8 for some tenures and clearly wrong for others, so treat it as an observation rather than a method. Working a 12% flat rate through properly: over one year it is 1.79 times, over eighteen months 1.80, over three years 1.77, over five years 1.69 and over seven years 1.63. The multiple peaks near eighteen months and declines with longer tenures. Both pages we found stating the 1.8 figure disclaim it in the same sentence, and no institutional source stands behind it. Wikipedia says only that the APR is almost twice the quoted flat rate, which is a rule from practice rather than a derivation.
Is the equivalent reducing rate the same as APR?
No, and conflating them will contradict the paperwork your lender gives you. This calculator converts between rate conventions on the loan amount. APR, as the Reserve Bank of India defines it, is the annual cost of credit including the interest rate and all other charges, and it is computed on the net amount actually disbursed rather than the sanctioned amount. RBI's own worked example in the Key Facts Statement circular turns a 15% loan into a 17.07% APR purely because 400 rupees of fees on a 20,000 rupee loan means only 19,600 reaches the borrower. Switch on the processing fee and GST fields above and this calculator reports that figure separately.
Does RBI require lenders to disclose the real rate?
It requires an APR, which gets you there. Under RBI circular RBI/2024-25/18 dated 15 April 2024, effective for all new retail and MSME term loans sanctioned on or after 1 October 2024, lenders must give every prospective borrower a standardised Key Facts Statement before the contract is signed. That statement must carry an annual percentage rate, and the circular specifies that the KFS shall also include a computation sheet of annual percentage rate and the amortisation schedule of the loan over the loan tenor. RBI did not ban quoting a flat rate. What it did was make sure a flat rate can no longer be the only cost figure a borrower is handed at sanction. Credit card receivables are exempt, and payments banks are outside the circular's scope.
Why do two calculators give different answers for the same loan?
Usually because one of them is approximating. Comparing published figures for identical inputs during a September 2026 survey turned up real disagreements: one lender page states that a 10% flat rate over three years is 18.5% reducing, when solving it gives 17.92%, a gap of nearly 0.6 points. Another publishes a formula that converts a 10% reducing rate over five years into a 3.33% flat rate, when the correct answer is 5.50%. A third tells readers to divide the flat rate by 1.8, which points the wrong way entirely and would make a flat loan look cheaper than it is. Check any figure you are given against a loan you can actually verify.
Sources
- Reserve Bank of India, Key Facts Statement (KFS) for Loans & Advances, circular RBI/2024-25/18, reference DOR.STR.REC.13/13.03.00/2024-25, dated 15 April 2024, effective 1 October 2024 (the APR definition, the computation sheet and amortisation schedule requirement, and the scope) rbi.org.in
- Wikipedia, Equated monthly installment (the amortising EMI formula and its variable definitions) en.wikipedia.org
- Wikipedia, Internal rate of return (that the rate cannot be found analytically and numerical methods must be used) en.wikipedia.org
- Wikipedia, Flat rate (finance) (the flat interest basis, and that the APR is almost twice the quoted rate) en.wikipedia.org
- Microsoft, RATE function (that the rate is calculated by iteration, to a tolerance of 0.0000001 within 20 iterations) support.microsoft.com
Note on sourcing: RBI’s Annex B worked example, which gives the 17.07% APR and states that it is computed on the net disbursed amount using an IRR approach and the reducing balance method, is published as a separate PDF that blocks automated retrieval. The figures above were taken from a reproduction of the circular and independently reconciled by arithmetic, which matches to the stated precision. The paragraph text quoted on this page is from RBI’s own site.