How to use this calculator
- Pick the direction. Choose flat to reducing when you have a quote from a dealer, a consumer durable lender or an NBFC that says "flat". Choose reducing to flat when you want to see what a bank rate would look like if it were quoted the dealer's way.
- Enter the rate as quoted, as a yearly figure. If the quote is per month, multiply it by 12.
- Enter the tenure exactly as offered. The tenure changes the answer, so 24 months and 36 months at the same flat rate give different reducing rates.
- Enter the loan amount to see rupee figures. This is the amount financed, not the on-road or invoice price: subtract your down payment first.
Then check the flat EMI in the result against the EMI on your quote. If they match, you entered the quote correctly. If the quoted EMI is higher, there are charges or advance EMIs built in, and the real rate is higher than the one shown here.
How the conversion works
Flat: total interest = loan × flat rate × years, spread evenly over the EMIs. The interest never falls, even as you repay.
Reducing: each month's interest = amount still owed × rate ÷ 12. The EMI is the standard reducing-balance EMI.
We find the reducing rate that gives exactly the same EMI as the flat quote (and vice versa). That is the rate you are really paying.
Worked example
₹3 lakh for 3 years, quoted at "9%":
| EMI at 9% flat | ₹10,583 |
| EMI at 9% reducing | ₹9,540 |
| Total interest at 9% flat | ₹80,988 |
| Total interest at 9% reducing | ₹43,440 |
| 9% flat is the same as | 16.24% reducing |
Same headline number, about ₹37,548 more interest. The EMI is the figure to hold on to: if two offers have the same amount and tenure, the one with the lower EMI is cheaper, whatever the rate label says.
Quick check: the same flat rate over different tenures
A 9% flat quote converts to a different reducing rate depending on the tenure:
| Tenure | Real (reducing) rate |
|---|---|
| 12 months | 16.22% |
| 24 months | 16.43% |
| 36 months | 16.24% |
| 48 months | 15.99% |
| 60 months | 15.71% |
The reducing equivalent stays high across all of them, from 16.22% over a year to 15.71% over five. A longer tenure does not rescue a flat-rate loan; it only spreads the same expensive pricing over more EMIs.
Quick check: comparing a bank quote with a dealer quote
Say your bank offers 10.5% reducing and the dealer offers "7% flat" on the same ₹3 lakh for 3 years. The dealer's number looks lower. Convert both ways:
| Bank: 10.5% reducing, as a flat rate | 5.67% |
| Dealer: 7% flat, as a reducing rate | 12.83% |
| Bank EMI | ₹9,751 |
| Dealer EMI | ₹10,083 |
On a like-for-like basis the bank is cheaper by about ₹11,952 over the loan, before fees. Dealer offers can still win if they come with a real cash discount, so add any discount to the comparison. For why lenders quote flat at all and the questions to ask, read our guide to flat and reducing rates.
Assumptions
- Equal monthly EMIs for the whole tenure, with no fees. Fees make the real rate higher still.
- The reducing rate shown is a nominal annual rate (monthly rate × 12), the way banks quote loans.
- To compare full offers with fees, use the loan offer comparison. For a bike loan, try the two-wheeler loan EMI calculator.
Frequently asked questions
What is the difference between a flat and a reducing interest rate?
A flat rate charges interest on the original loan amount for the whole tenure, even after you have repaid part of it. A reducing (diminishing) balance rate charges interest each month only on what you still owe. For the same number, a flat rate always costs more. Banks quote home, car and personal loans on a reducing basis.
Why does the reducing rate change when I change the tenure?
Under a flat rate, you pay interest on the full amount for every year of the loan, while the amount you really owe falls steadily. How far the two drift apart depends on how long the loan runs. For the same flat rate, the equivalent reducing rate is highest for loans of about one to three years and falls slowly after that.
My lender quotes a rate per month. How do I enter it?
Multiply it by 12 to get the yearly figure. A quote of 1% per month flat is 12% a year flat, and 1.5% per month flat is 18% a year flat. Then enter that yearly flat rate with the tenure. If the per-month rate is on a reducing balance, multiply by 12 and use the reducing-to-flat direction instead.
Does this calculator include the processing fee?
No. It converts the rate only, so you can compare like with like. Processing fees, file charges, advance EMIs and bundled insurance all push the real cost higher. To include them, use the loan offer comparison or the APR and KFS checker, which work out the annual percentage rate from the amount you actually receive.
Is the converted rate the same as the APR in my Key Facts Statement?
Only if the loan has no fees at all. The converted rate is the reducing-balance rate that gives the same EMI as the flat quote. The APR in the KFS also counts the fees and charges you pay, so it is usually a little higher than the converted rate. If the APR is much higher, look for charges you did not expect.
Why is my lender's EMI a few rupees different from this result?
Lenders round EMIs in their own way, may charge interest for the broken period between disbursal and the first EMI, and sometimes take the first EMI in advance. Each of these shifts the EMI slightly. A difference of a few rupees is normal; a difference of a few hundred suggests fees or terms that you should ask about.