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See how much more interest you pay on a flat-rate loan vs an equivalent reducing-balance loan. The same advertised rate ≠ same cost.
Watch out — lenders sometimes quote flat rate (looks cheaper) but charge reducing-equivalent fees.
Flat rate charges interest on the original principal every year. Reducing rate charges only on the outstanding balance. Same advertised rate → very different total interest.
Interest = Principal × Rate × Years. Charged on full amount even though you keep paying it down.
interest = P × rate × years EMI = (P + interest) ÷ months
Interest is calculated each month on outstanding balance (standard EMI formula).
EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1)
A 10% flat rate is roughly equivalent to 17-20% reducing rate effective. Always ask which rate is being quoted.
effective ≈ flat × 1.85 // rough rule of thumb
Flat: interest = P × r × y; Reducing: standard EMI formulaOn the same advertised rate, flat costs nearly 2x more total interest over 5+ year tenure.Interest rate disclosure norms; all home loans must use reducing rate.
Indian Banks Association reducing-balance default for most loans.
Reducing-balance EMI formula derivation and theory.
Loan product comparison flagging flat vs reducing rate.
Effective rate concept and APR vs nominal rate.
Reducing-balance example loan documents from a major PSU bank.
Superworks logs every salary advance, employee loan, and EMI deduction with full effective-rate disclosure — transparent for both HR and employee.
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