How this calculator works
- Step 1Price the flat offer₹5,000.00Interest uses the full original loan for the entire term.
- Step 2Match all monthly payments24Assume the same principal received today and equal payments at month end.
- Step 3Solve its reducing equivalent18.16%Nominal annual rate; fees and disbursement deductions are excluded.
A flat rate charges interest on the original principal throughout the term, even as repayments reduce what remains unpaid. A reducing rate charges each month’s interest on the current balance. Identical printed percentages therefore describe different payment obligations.
This worksheet first calculates the flat payment. It then finds the reducing monthly rate that creates exactly that payment for the same principal and term. A separate reducing-offer field lets you compare an actual alternative on those assumptions.
Worked example: convert the flat offer
- Flat interest
Iflat = principal × flat percentage / 100 × months / 12- Flat monthly payment
payment = (principal + Iflat) / months- Solve the equivalent monthly rate i
payment = principal × i / [1 − (1 + i)^(−months)]- Annualise the solved rate
nominal annual percentage = 1200 × i
- principalamount received at time zero ₹1,00,000.00
- monthsequal end-of-month payments 24
- Entered flat annual rate10%
- Flat interest over the whole loan₹20,000.00
- Flat total paid₹1,20,000.00
- Flat monthly payment₹5,000.00
- Equivalent effective annual rate19.75%
- Equivalent nominal reducing annual rate18.16%
The engine solves the rate numerically, not with a rule that doubles the flat rate. Dividing by the same number of months is not enough: payment dates and the declining unpaid balance determine the equivalent cost.
Compare the entered reducing offer
- Default flat offer₹5,000.00Monthly payment at 10% flat; total interest ₹20,000.00.
- Default reducing offer₹4,992.41Monthly payment at 18% nominal reducing; total interest ₹19,817.84.
The signed total difference is flat minus reducing. Positive means the flat offer costs more within this model; negative means the reducing offer costs more. Neither direction alone chooses a suitable loan, because contractual fees, flexibility and eligibility are not assessed.
Same printed number does not mean same cost
- Flat basis₹5,000.00At the default 10% flat rate.
- Reducing basis₹4,614.49At the same 10% nominal reducing rate.
Effective annual rate compounds the solved monthly rate for a full year. Nominal annual rate multiplies it by twelve. They describe the same monthly equivalent in different ways; compare like conventions rather than assuming either is an additional charge.
This is not a regulatory APR calculation
Matching instalments without fees is a payment-stream comparison, not a complete all-in credit-cost disclosure.
Both offers assume full principal is disbursed today, no advance instalment, no balloon payment and no fees or taxes. If a lender deducts a processing charge before disbursement, the amount actually received is lower and its all-in cost can be higher.
The flat schedule allocates principal evenly and flat interest equally. It is an illustration, not a claim about a lender’s foreclosure balance, prepayment rebate or interest-recognition policy. Those depend on the agreement.
Check the schedule and zero-rate identity
- First flat interest allocation₹833.33The same allocation appears each month in this illustrative flat ledger.
- First reducing interest charge₹1,500.00Later interest falls as the unpaid balance reduces.
- Both rates at zero₹4,166.67Each payment is principal divided by months, and the total cost difference is zero.
Open the full schedule for both balances side by side or export unrounded CSV. The input ranges allow one to 480 months and a wide comparison-rate range; they are computational limits, not advertised offers or eligibility criteria.
Related loan tools
A flat rate charges interest on the full loan for the whole term, so it looks lower than it is.
Once you know the reducing rate, the EMI calculator gives the payment for other terms. The APR calculator adds fees into one yearly rate, and the amortization calculator shows the monthly split.
Common mistakes
Mistake: Compare a flat rate directly with a reducing percentage.
Instead: Match the payment stream and annual-rate convention first.
Mistake: Multiply every flat rate by two to estimate its equivalent.
Instead: Solve using the actual duration and payment dates.
Mistake: Call this fee-free equivalent the lender’s APR.
Instead: Check all mandatory charges and net disbursement in the lender’s disclosure.
Mistake: Read the flat balance as a foreclosure quotation.
Instead: Ask for the contractual settlement and rebate calculation.
Methodology and sources
Tests discount each solved payment separately and recover the original principal, independently of the annuity formula.
The reducing-payment relationship follows OpenStax’s annuity and amortisation equations. Golden cases include a single month, zero rate and long terms. Numerical root substitution, scale invariance and ledger checks test different aspects of the result. Sources and review details follow.
Read how we test our calculators, or browse more money calculators.