Why is a flat rate misleading?

It looks lower than a reducing rate because it doesn't account for the principal you pay back every month. You are essentially paying interest on money you have already returned to the bank.

How to convert flat rate to reducing rate?

A rough rule of thumb is to multiply the flat rate by 1.8 to 1.9 to get the approximate reducing rate equivalent. Use our calculator for the exact Newton-Raphson conversion.

Flat vs Reducing Rate Calculator

Convert flat interest rates to reducing balance equivalent. Reveal the hidden cost of NBFC and car dealer loan offers.

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Quick Summary: Flat vs Reducing Rate Calculator

A flat interest rate is calculated on the full original principal for the entire tenure, whereas a reducing rate is calculated only on the remaining balance. A 10% flat rate is mathematically equivalent to approximately 17.3% reducing rate for a 5-year tenure. Always ask for the reducing rate equivalent (APR) to compare loan offers fairly.

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Last verified May 2026

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