Loan Interest Calculator
Want to know how much interest you're actually paying over the life of a loan? Enter the amount, rate, and tenure and compare the reducing balance method (how banks actually charge) against flat rate - the difference is bigger than most people expect.
How to use
- Enter your loan amount, interest rate, and tenure.
- Pick Reducing Balance if you're dealing with a bank loan. Flat rate is used by some NBFCs and car dealers.
- Reducing balance charges interest only on what you still owe - fairer and cheaper.
- Flat rate charges interest on the full original amount throughout - sounds lower but costs more.
Related tools:
The interest rate on a loan brochure and the actual interest you pay are two different things depending on which calculation method the lender uses. On a flat-rate loan, interest is calculated on the original principal for the entire tenure - even as you repay the balance. On a reducing balance loan, interest is charged only on the outstanding amount each month.
A 12% flat rate loan is not the same as 12% reducing balance. The flat rate costs significantly more - roughly equivalent to a 21-22% reducing balance rate. This distinction matters most when comparing offers from different lenders. Always ask which method they use and convert to the same type before comparing.
Frequently Asked Questions
Why is flat rate more expensive than reducing balance?
With flat rate, you pay interest on the full original principal every month even though your outstanding balance falls as you repay. With reducing balance, interest is charged only on what you still owe. For the same nominal rate, flat rate costs roughly 1.7-1.9x more total interest.
Which loans use flat rate vs reducing balance?
Most banks and NBFCs use monthly reducing balance for home, car, and personal loans. Some older or smaller lenders and microfinance institutions use flat rates. Always ask explicitly.
What is APR and how is it different from the interest rate?
APR (Annual Percentage Rate) includes the interest rate plus fees like processing charges, insurance, etc., expressed as a single annual rate. It gives a more complete picture of the true cost of borrowing than the headline rate alone.
Disclaimer: Results are estimates for informational purposes only and do not constitute financial, tax, or investment advice. Figures may vary based on actual terms. Always consult a qualified financial advisor before making financial decisions.