Method, example and interpretation · Revised 16 October 2026
Understand the difference between flat and reducing interest
Loan labels can make unlike rates look comparable. This page includes ordinary reducing-balance scenarios and a flat-rate comparison. Use it to understand the charging method before comparing two advertised percentages.
Flat interest charges the original principal
For a flat rate, total interest is principal × annual rate × years. Monthly payment spreads principal plus that interest across the term. A reducing-balance loan instead calculates interest each month on the unpaid principal. The same quoted percentage therefore produces different payments and total interest under the two methods.
A term change is a budget trade-off
Home, car and personal-loan presets select different starting amounts and permitted ranges. They are sample scenarios, not market rates or recommendations. The payment, balance chart, repayment schedule and print output all use your selected values. A preset does not establish eligibility for that type of loan.
Before making a borrowing decision
Compare the complete repayment amounts on equal principals and include fees. Decide how much of your monthly income can remain committed while keeping an emergency buffer. The simplified eligibility tab is a budget calculation; the more detailed wizard lets you include living expenses and profile assumptions, but neither is a lender approval.
Worked example
₹5,00,000 at a quoted 10% for five years.
Flat interest ₹2,50,000 and EMI ₹12,500; reducing-balance EMI ₹10,624.
This comparison holds the quoted rate equal to show the difference in methods. It does not claim the flat and reducing rates are economically equivalent.
Questions about this tool
Can I compare the percentages printed on two offers directly?
Only after checking the charging method, fees, timing and term. Ask for the annual percentage rate and complete payment schedule.