Flat vs reducing rate — what you actually pay

Looks cheaper at first glance. A "10% flat" loan sounds better than a "16% reducing" loan, but they cost the same in total interest. Some NBFCs and consumer durable lenders prefer flat because customers don't do the math.

Reducing rate, always. On the same numeric rate (10% flat vs 10% reducing), flat costs nearly 2x the total interest. The longer the tenure, the bigger the gap.

Approximate rule: Effective Reducing Rate ≈ Flat Rate × 1.85 (for 5-year tenure). For exact: solve EMI formula iteratively. This calculator does it for you.

Always reducing (RBI mandate). Personal loans, car loans, education loans: also reducing at banks. Watch out for flat-rate consumer loans from NBFCs and store credit.

Most gold loan companies use reducing rate. But some structure as flat rate for "easy understanding" — read the fine print and ask for the effective annualised rate.

Only if the flat rate is genuinely low (3-4%). A 4% flat loan ≈ 7.4% reducing — competitive with personal loans. Above 6% flat = expensive.

Refinancing — yes. If you find a cheaper reducing-rate loan, take it and prepay the flat-rate loan. Most lenders allow prepayment without penalty (for floating rates) under RBI rules.

Because flat EMI = (Principal + Total Interest) ÷ Months. Lower monthly looks attractive. But you pay much more in total because you're paying interest on principal you've already repaid.