Loan Calculator

Flat rate versus reducing balance

Some lenders quote a flat rate, charging interest on the original principal for the whole term. A ₹1,00,000 loan at a 10% flat rate for one year costs ₹10,000 in interest. On a reducing balance at 10%, the EMI is about ₹8,792 and total interest is only about ₹5,499, because interest is charged on the falling outstanding amount. A flat rate therefore costs nearly twice as much as the same headline reducing rate, so always ask which method a lender uses.

How loan repayments work

Most personal, car and education loans are repaid in equal monthly instalments. The calculator uses the standard amortisation formula: payment = P × r × (1 + r)^n / ((1 + r)^n − 1), with P the principal, r the monthly rate and n the number of months. Interest each month is charged only on the balance still outstanding, so the interest part of each payment falls over time.

The total interest is simply the total of all payments minus the amount borrowed. Comparing that figure across offers is the clearest way to see which loan is cheaper.

Worked example

A 5,00,000 personal loan at 12 percent for 3 years: r = 0.01 and n = 36. (1.01)^36 = 1.4308, so payment = 5,00,000 × 0.01 × 1.4308 / 0.4308 ≈ 16,607 per month. Total paid is about 5,97,850, so interest is about 97,850. Stretching the same loan to 5 years lowers the payment to about 11,122 but raises total interest to about 1,67,330.

Comparing loan offers

Look beyond the headline rate. Processing fees, insurance bundled with the loan and prepayment penalties all add to cost. A "flat rate" quote charges interest on the original amount for the whole term and is much more expensive than the same number quoted as a reducing-balance rate, so always convert offers to a reducing-balance rate before comparing.