Flat vs Reducing EMI Calculator
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Whenever you take a loan have you ever asked whether the interest rate that lending partner will going to charge is flat interest rate or reducing interest rate?
No, well, like you most people don’t ask this question and never able to understand that what is the difference between flat and reducing interest rate, which one is better for you, and much more.
Hence, I have covered all this topics, so that while using our flat and reducing rate emi calculator you can also learn about both of them.
So, let’s get started!
What is Flat Interest Rate
Flat interest rate means that interest charged on your loan will be based on the total outstanding amount regardless of remaining outstanding amount.
Thus, interest part always remain same or flat in the emi.
Example of Flat Interest Rate Loan
Let’s say you have taken a loan of Rs. 5,00,000 for 3 years at a 12% flat interest rate.
Then as you can checkout using our flat rate emi calculator, you got to know that
Your Monthly EMI will be Rs. 18,888.89 and you will have to pay total interest of Rs. 1,80,000 by the end of your loan.
What is Reducing Interest Rate
Reducing interest rate means the interest charge on your loan will based on the remaining outstanding loan amount and not on the complete loan amount you have take initially and hence, the interest part will keep reducing in the emi.
Example of Reducing Interest Rate Loan
Take the same example as of above, where you have taken a loan of Rs. 5,00,000 for 3 years at a 12% reducing interest rate this time.
Now checkout the drastic difference in Reducing EMI, in this case your Monthly EMI will be Rs. 16,607.15 and you will have to pay Total Interest of Rs. 97,857.58
That means, if you take a loan on flat interest rate so as per above calculations you have to pay an extra interest of Rs. 82,142 over the time or an extra Rs. 2281.74 over each EMI compared to reducing interest rate loan.
Differences Between Flat Vs Reducing Interest Rate
| Comparison Basis | Flat Interest Rate | Reducing Interest Rate |
|---|---|---|
| Simplicity | Easy To Calculate | Tricky and complex calculation |
| Interest Application | Interest applied on total outstanding balance | Interest applied on remaining outstanding balance only. |
| Affordability At Same Interest Rate | Expensive, you have to pay more in interest. | Cheaper, lesser interest you have to pay |
| EMI Payment | Always remain fixed | Reduces as the outstanding amount reduces. |
Flat Interest Rate EMI Calculator and How it Calculated
A flat interest rate emi calculator give you the exact picture of monthly emi you will be going to pay to repay your loan when there is flat interest rate.
The formula for calculating flat rate interest is:
Total Interest = Principal × Rate/100 × Time
For example, if you have a loan of ₹100,000 at a flat rate of 10% for 5 years:
Total Interest = 100,000 × 0.10 × 5 = ₹50,000
Principal + Total Interest = 1,00,000 + 50,000 = Rs. 1,50,000
Flat Rate Monthly EMI = 1,50,000 / 60 (5 years in months format)
Monthly EMI Will be Rs. 2500 as per this formula.
Reducing Rate EMI Calculator
A reducing interest rate emi calculator give you the exact picture of monthly emi you will be going to pay to repay your loan when your interest rate will be on reducing basis.
The formula for reducing rate interest is slightly more complex since it requires you to account for the decreasing principal.
A common way to compute this is through an amortization schedule, but a simplified approach is:
This formula will give you the monthly payment amount based on the principal, rate, and duration of the loan.
Taking the same example where if you take a loan of Rs. 1,00,000 for 5 years at a 10% reducing rate of interest.
Then using our Reducing Rate EMI Calculator, we get to know that your monthly EMI will be Rs. 2,124.70
Flat vs Reducing Rate Calculator
Our Flat vs Reducing Rate Calculator is designed in such a way that you can calculate both flat interest rate emi and reducing interest rate emi and can compare which one is better for you.
This way you will be going to save a lot of time that otherwise you may wasted in doing manual calculations.
How Flat vs Reducing Rate Calculator Works?
To use our flat vs reducing rate calculate follow the below steps:-
- Firstly, you need to enter the total loan amount you are planning to borrow in “Loan Amount” Column.
- After that, enter the interest rate in % terms the lender is offering to you “Annual Interest Rate” Column. Do remember before taking the loan do ask the interest rate they are offering is on reducing basis or flat rate for exact calculation.
- Finally, choose the tenure type Years or Months and enter the total time for how long you are taking that loan in “Loan Tenure Column”
Result Display For Both Flat and Reducing Rate:
- Monthly EMI: The EMI you have to pay monthly in both flat and reducing rate loan.
- Total Interest Paid: The total interest you will be going to pay through out the years on your principal amount or your loan amount.
- Total Amount Payable: The total amount you will be going to pay in form of EMI including the interest part.
Final Words – Flat vs Reducing Rate EMI Calculator
Using our flat vs reducing rate emi calculator is very easy.
But do remember one thing that no flat rate and reducing rate calculator never tells you that although taking reducing rate loan looks cheaper on calculator.
But in real life lender are aware of this thing hence they usually offer their loans on lower flat interest rate or higher reducing interest rate so that the EMI remain same.
This calculator can be really useful for you in those cases where you have the option to opt for flat rate or reducing rate of same interest percentage.
Disclaimer: The Honest American provides financial education, investing strategies, & stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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