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About this tool
Convert a flat interest rate to its true reducing-balance equivalent, or back again, with the EMI and total interest.
A flat interest rate charges interest on the full original principal for the entire tenure, while a reducing-balance rate charges it only on what you still owe. This converter turns a quoted flat rate into the reducing-balance rate that produces the same EMI, which is the only way to compare a flat-rate offer against a normal bank loan.
Open Flat vs Reducing Interest Rate Converter on AltFTool — it loads instantly in your browser.
Enter the values you already know.
Fine-tune the options to match your scenario.
Read the result and use it in your planning or reporting.
Converts both quotes to the same basis so the cheaper loan is obvious.
A flat rate is usually close to double its reducing-balance equivalent.
Derives the effective rate from the instalment the lender actually quoted you.
No, and the difference is large. A flat rate is charged on the original principal every month even though you have already repaid part of it, so a flat rate is usually close to twice its reducing-balance equivalent — roughly 8% flat behaves like about 15% reducing over five years.
Compute the EMI from the flat rate — principal plus flat interest, divided by the number of months — then solve for the reducing-balance rate that produces that same EMI. There is no simple closed formula; it is found by iteration, which is what this tool does.
Because the number looks smaller. A dealer quoting 8% flat is offering roughly the same deal as a bank quoting 15% reducing, but the flat figure reads as the better offer to anyone comparing headline rates.
Banks quote retail loans on a reducing balance, where each EMI's interest is charged only on the outstanding principal. Flat rates turn up mostly in dealer finance, consumer-durable loans and some NBFC products.
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