Loan Interest Calculator

Q: What's the difference between a flat rate and a reducing balance rate?

A reducing balance rate charges interest only on the outstanding amount, which falls every month as you repay. A flat rate charges interest on the full original principal for the whole tenure, even in the final month when you owe very little. The same number means a much more expensive loan under the flat method.

Q: How do I convert a flat rate to a reducing rate?

There's no clean formula — the conversion has to be solved numerically, which is what this calculator does. As a rough rule of thumb, a flat rate works out to roughly 1.7 to 1.9 times the equivalent reducing rate for typical tenures, but the exact multiple depends on the term. Always convert before comparing two quotes.

Q: Why do some lenders quote flat rates?

Because the number looks smaller. A dealer offering '7% finance' on a two-wheeler is quoting flat, which is closer to 13% on the basis a bank would use. It isn't necessarily hidden — it's often stated in the paperwork — but it's easy to miss if you're comparing headline numbers.

Q: Does a longer tenure mean more interest?

Yes, under both methods, though for different reasons. Under a reducing balance, the outstanding principal stays higher for longer, so more interest accrues. Under a flat rate, interest is simply the principal multiplied by the rate and the number of years, so doubling the tenure exactly doubles the interest.

Q: Is the total interest figure the full cost of my loan?

No. Processing fees, GST on those fees, mandatory insurance and any prepayment penalty all add to the cost. For a like-for-like comparison between lenders, ask each for the annual percentage rate (APR), which folds fees into a single figure.

Your Interest Breakdown

Total Interest Payable

₹2,74,823

Monthly EMI

₹21,247

Total Repayment

₹12,74,823

Interest as % of Principal

27.5%

This loan costs the same total interest as a 5.50% flat rate over the same tenure. If a lender quotes you a flat rate below that, it may be the cheaper deal.

Principal Amount (78.4%)Total Interest (21.6%)

Year-wise Interest & Principal

Year-wise loan principal, interest and balance breakdown
Year	Principal Paid	Interest Paid	Balance
1	₹1,62,268	₹92,696	₹8,37,732
2	₹1,79,260	₹75,705	₹6,58,472
3	₹1,98,031	₹56,934	₹4,60,442
4	₹2,18,767	₹36,198	₹2,41,675
5	₹2,41,675	₹13,290	₹0

How the Loan Interest Calculator Works

Enter the loan amount, the quoted interest rate and the tenure, then pick the method the rate is quoted under.

Under the reducing balance method, interest is charged only on what you still owe. As you repay principal, the interest portion of each instalment shrinks. Banks quote home, car and personal loans this way.

Under the flat rate method, interest is charged on the full original amount for the entire tenure, regardless of how much you've already repaid. It's common in dealer-arranged vehicle finance and some consumer loans.

Whichever method you choose, the calculator also shows the equivalent rate under the other one — so you can compare a flat quote against a bank's reducing-balance quote on the same footing.

Try 10% under both methods over 5 years. The flat version costs nearly twice the interest, and works out to roughly 17% on a reducing basis.

Formula Used

The two methods calculate interest quite differently:

Reducing: EMI = P × r × (1+r)^n / ((1+r)^n − 1) Flat: Interest = P × R × t, EMI = (P + Interest) / n

PLoan principal amount
RAnnual interest rate as a decimal (used in the flat calculation)
rMonthly interest rate (annual rate ÷ 12 ÷ 100)
tTenure in years
nTotal number of monthly instalments (tenure in years × 12)

Example Calculation

Suppose you borrow 10,00,000 for 5 years at a quoted rate of 10%.

Loan Amount1,000,000
Interest Rate10%
Tenure5 years
ResultReducing balance: interest ≈ 274,823 (EMI ≈ 21,247) · Flat rate: interest ≈ 500,000 (EMI ≈ 25,000), equivalent to roughly 17.3% reducing

Important Assumptions

The interest rate is assumed to stay fixed for the full tenure. Floating-rate loans linked to the repo rate or MCLR will differ as the benchmark moves.
Processing fees, insurance, documentation charges and GST are not included, so the true cost of borrowing is higher than the interest figure alone.
The equivalent-rate conversion assumes the same principal and tenure under both methods, which is how a like-for-like comparison should be made.
Under the flat method, every instalment is assumed to carry an equal share of interest and principal, which is how flat-rate schedules are normally constructed.
Prepayments, missed instalments and penalty charges are not modelled.