Flat vs Reducing Rate Calculator

Loan Amount

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Rate of Interest (p.a)

Loan Tenure

Years

Months

Flat interest rate		Reducing balance interest rate
Monthly EMI	₹0	₹0
Total Interest	₹0	₹0
Total Amount	₹0	₹0

Interest Amount

Loan Amount

When applying for a personal loan, one of the most important factors to consider is the method used to calculate the interest rate. Two commonly used approaches by financial institutions are the flat interest rate calculator and the reducing rate calculator.

The type of interest rate applied can significantly impact your overall loan experience. Therefore, it is essential to understand the differences between flat and reducing balance interest rates to select a loan that aligns with your financial goals and requirements.

What is a Flat Interest Rate?

A flat interest rate is a method in which the bank calculates the interest based on the total principal amount of the loan throughout the entire tenure.
The interest portion within the Equated Monthly Installment (EMI) remains constant for the entire duration of the loan.
For example, if you take a personal loan of ₹1,00,000 at a flat interest rate of 10% over a period of five years, the interest is calculated on the full ₹1,00,000 principal for the entire loan term.
Historically, banks have predominantly used the flat interest rate method to determine the interest on loans and other credit products.

What is a Reducing Balance Interest Rate?

In the reducing balance interest method, the bank calculates interest on the remaining outstanding loan balance. As loan repayments are made, the principal decreases, and interest for subsequent periods is computed based on this reduced balance.
Under the reducing balance method, initial EMIs tend to be more heavily weighted towards interest repayment. However, as the loan progresses, the focus gradually shifts towards principal repayment, resulting in a decrease in interest payments over time.
The primary advantage of the reducing balance interest method is its potential to lower the total cost of the loan. As the interest is calculated on the decreasing loan balance, the overall interest burden reduces over time, leading to a more cost-effective repayment structure in the long run.

Differences Between Flat Vs Reducing Interest Rate

Aspect	Flat Interest Rate	Reducing Interest Rate
Definition	Interest is calculated on the entire principal amount for the entire loan tenure.	Interest is calculated on the outstanding principal, which reduces over time as you repay.
Calculation Basis	Fixed on the original loan amount throughout the tenure.	Calculated on the remaining principal, which reduces with each repayment.
Total Interest Paid	Higher overall interest because the interest is calculated on the full loan amount.	Lower overall interest because the interest is calculated on the reduced principal.
Monthly Payment	Equal monthly payments throughout the loan period.	Varies as the outstanding principal decreases, meaning initial payments are higher but reduce over time.
Loan Tenure Impact	Monthly payments remain fixed, but the total repayment amount is higher.	Monthly payments can be lower over time, leading to savings in the total amount paid.
Loan Type	Common for personal loans, car loans, etc.	Typically used for home loans, mortgages, etc.
Impact on Early Repayment	No change in the interest calculated if you repay early, since the full amount is considered.	If you repay early, the interest will reduce because it’s calculated on the reduced principal.
Interest Rate	Typically higher compared to reducing balance loans.	Generally lower since the overall interest is calculated on the reducing principal.
Clarity of Repayment	Easier to understand, as the payment structure remains the same.	It can be complex initially, as the payments change over time based on the remaining balance.

What is Flat Interest Rate Calculator and How Does It Help You?

In Flat Interest Rate loans, the interest is calculated based on the original loan amount for the entire loan period.

Calculation Formula:

Principal (P)

Annual Interest Rate (I) – in percentage

Tenure (T) – in years

Total Interest = (P * I * T)/100

Total amount to be repaid = P + (P * I * T) /100

Monthly EMI = (P + (P *I* T)/100) / T*12 (T is in years)

What is the Reducing Interest Rate Calculator and How Does It Help You?

Interest is calculated on the remaining amount of the loan at any given time in a Reducing Balance Interest Rate loan.

Calculation Formula: EMI = [P x Ix (1+I) ^T]/ [((1+I) ^T)-1)]

Where –

P is the principal amount
I is the rate of interest / (100×12)
T is the number of years x 12
Total interest = monthly EMI x T–P
Total amount = monthly EMI x T

Flat vs Reducing Rate Calculator

The Flat vs. Reducing Rate Calculator is a tool designed to help you compare two methods of interest calculation, enabling you to determine the most cost-effective option for your financial needs. It also provides a clear comparison of the interest paid over the course of your EMIs, allowing you to make an informed decision.

How to Use BlinkX Flat Rate Vs Reducing Interest Rate Calculator?

To use the BlinkX loan calculator, follow these simple steps:

Step 1: Input the principal loan amount in the designated field on the calculator.

Step 2: Provide the loan tenure and interest rate as per the terms of your agreement.

Step 3: Click on the ‘Calculate’ button to instantly determine the total interest payable on your loan.

This tool offers an easy and efficient way to assess the financial implications of your loan.

What are the Advantages of the Flat vs Reducing Rate Calculator?

The BlinkX Flat Rate vs Reducing Rate Calculator is a user-friendly online tool that provides quick and accurate loan interest calculations.
Accessible from anywhere, at any time, this tool helps you save valuable time and effort typically spent on manual calculations.
It enables you to easily determine the total interest payable on your loan, assisting in better financial planning.
By simply entering basic loan details, the calculator allows you to compare the two most commonly used interest calculation methods—flat rate and reducing rate—and highlights the differences in the interest amounts paid under each method.
This is an efficient solution for evaluating and planning your loan repayment strategy.