{"id":10187,"date":"2026-07-03T10:52:11","date_gmt":"2026-07-03T05:22:11","guid":{"rendered":"https:\/\/www.fatakpay.com\/blog\/?p=10187"},"modified":"2026-07-03T12:02:57","modified_gmt":"2026-07-03T06:32:57","slug":"flat-vs-reducing-interest-rate","status":"publish","type":"post","link":"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/","title":{"rendered":"Flat Interest Rate vs Reducing Balance Interest Rate: Which Costs Less?\u00a0"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">When comparing personal loan offers, most borrowers focus only on the advertised interest rate. However, the method used to calculate interest can significantly affect the total amount you repay. Understanding&nbsp;flat interest rate vs reducing interest rate&nbsp;helps you compare loans accurately and choose the option that truly costs less over the loan tenure.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#What_Is_a_Flat_Interest_Rate\" >What Is a Flat Interest Rate?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#What_Is_a_Reducing_Balance_Interest_Rate\" >What Is a Reducing Balance Interest Rate?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Flat_vs_Reducing_Interest_Rate_%E2%80%93_Comparison_Table\" >Flat vs Reducing Interest Rate &#8211; Comparison Table&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Why_a_%E2%80%9CLow%E2%80%9D_Flat_Rate_Can_Actually_Cost_More_Than_a_%E2%80%9CHigher%E2%80%9D_Reducing_Rate\" >Why a &#8220;Low&#8221; Flat Rate Can Actually Cost More Than a &#8220;Higher&#8221; Reducing Rate&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Which_Lenders_Use_Which_Method\" >Which Lenders Use Which Method?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Which_Should_You_Choose\" >Which Should You Choose?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Conclusion\" >Conclusion&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#FAQs_on_Flat_vs_Reducing_Interest_Rate\" >FAQs on Flat vs Reducing Interest Rate&nbsp;<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#What_is_the_difference_between_flat_and_reducing_interest_rate\" >What is the difference between flat and reducing interest rate?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Which_is_cheaper_%E2%80%93_flat_rate_or_reducing_balance_rate\" >Which is cheaper &#8211; flat rate or reducing balance rate?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Do_banks_use_flat_rate_or_reducing_rate_for_personal_loans\" >Do banks use flat rate or reducing rate for personal loans?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Can_a_flat_rate_loan_actually_cost_more_than_a_reducing_rate_loan\" >Can a flat rate loan actually cost more than a reducing rate loan?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#How_do_I_convert_a_flat_rate_to_its_reducing_rate_equivalent\" >How do I convert a flat rate to its reducing rate equivalent?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/#Is_EMI_the_same_under_both_flat_and_reducing_rate_methods\" >Is EMI the same under both flat and reducing rate methods?&nbsp;<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_a_Flat_Interest_Rate\"><\/span>What Is a Flat Interest Rate?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A&nbsp;flat interest rate&nbsp;charges interest on the entire original loan amount throughout the entire repayment tenure, even though you gradually repay the principal through EMIs. This means the interest amount&nbsp;remains&nbsp;calculated on the&nbsp;initial&nbsp;loan balance rather than the outstanding balance.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Formula:<\/strong>&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Total Interest = Principal \u00d7 Interest Rate \u00d7 Loan Tenure (Years)<\/strong>&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Although the advertised rate often appears lower, the effective borrowing cost under a flat interest rate is usually much higher than it seems.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_a_Reducing_Balance_Interest_Rate\"><\/span>What Is a Reducing Balance Interest Rate?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A\u00a0reducing balance interest rate, also called a diminishing balance rate, calculates interest only on the outstanding loan balance after each EMI payment. Since every EMI reduces the principal, the\u00a0interest payable also declines over time. This results in lower total interest costs compared to flat-rate loans, making it the preferred interest calculation method used by most banks for personal loans. While the reducing balance method\u00a0determines\u00a0how interest is calculated, borrowers should also understand\u00a0<a href=\"https:\/\/www.fatakpay.com\/blog\/personal-loan\/fixed-vs-floating-interest-rate\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>fixed vs floating interest rate personal loan<\/strong><\/a>\u00a0options, which\u00a0determine\u00a0whether that interest rate\u00a0remains\u00a0constant or changes during the loan tenure.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Flat_vs_Reducing_Interest_Rate_%E2%80%93_Comparison_Table\"><\/span>Flat vs Reducing Interest Rate &#8211; Comparison Table&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Feature<\/strong>&nbsp;<\/td><td><strong>Flat Interest Rate<\/strong>&nbsp;<\/td><td><strong>Reducing Balance Interest Rate<\/strong>&nbsp;<\/td><\/tr><tr><td><strong>Interest Calculated On<\/strong>&nbsp;<\/td><td>Original principal throughout the tenure&nbsp;<\/td><td>Outstanding loan balance after every EMI&nbsp;<\/td><\/tr><tr><td><strong>Total Interest Cost<\/strong>&nbsp;<\/td><td>Higher&nbsp;<\/td><td>Lower&nbsp;<\/td><\/tr><tr><td><strong>EMI<\/strong>&nbsp;<\/td><td>Constant, but hides the actual borrowing cost&nbsp;<\/td><td>Constant, while interest&nbsp;portion&nbsp;gradually reduces&nbsp;<\/td><\/tr><tr><td><strong>Commonly Used By<\/strong>&nbsp;<\/td><td>Some NBFCs, informal lenders, short-tenure lending products&nbsp;<\/td><td>Most banks including SBI, HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank&nbsp;<\/td><\/tr><tr><td><strong>Transparency<\/strong>&nbsp;<\/td><td>Lower: Advertised rate appears smaller&nbsp;<\/td><td>Higher: Reflects the actual cost of borrowing more accurately&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">The primary&nbsp;difference between flat and reducing interest rate&nbsp;lies in how interest is calculated. When comparing&nbsp;flat vs reducing, borrowers should always evaluate the total repayment rather than relying solely on the advertised interest rate.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_a_%E2%80%9CLow%E2%80%9D_Flat_Rate_Can_Actually_Cost_More_Than_a_%E2%80%9CHigher%E2%80%9D_Reducing_Rate\"><\/span>Why a &#8220;Low&#8221; Flat Rate Can Actually Cost More Than a &#8220;Higher&#8221; Reducing Rate&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">This is one of the most misunderstood aspects of loan comparisons. Many borrowers assume that a flat interest rate of around&nbsp;<strong>8%<\/strong>&nbsp;is automatically cheaper than a reducing balance rate of&nbsp;<strong>15\u201316%<\/strong>.&nbsp;In reality, the&nbsp;opposite is often true.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Since flat interest is calculated on the full original principal throughout the loan tenure, borrowers continue paying interest on amounts they have already repaid. By contrast, reducing balance loans calculate interest only on the remaining outstanding balance after each EMI.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Therefore, when comparing&nbsp;flat interest vs reducing interest, never rely only on the headline interest rate. Always ask the lender for the effective reducing-rate equivalent or compare the total repayment amount before making a borrowing decision.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You can also use a\u00a0<a href=\"https:\/\/www.fatakpay.com\/calculator\/personal-loan-emi-calculator\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>personal loan EMI calculator<\/strong><\/a>\u00a0to compare EMIs, total interest, and overall repayment under both flat and reducing balance methods before choosing a loan.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Which_Lenders_Use_Which_Method\"><\/span>Which Lenders Use Which Method?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Most scheduled commercial banks in India use the reducing balance method for personal loans because it provides a more&nbsp;accurate&nbsp;reflection of the outstanding loan amount. However, some NBFCs, informal lenders, and certain short-tenure loan products may still calculate interest using the&nbsp;flat-rate method. Before accepting any loan offer, ask the lender whether the loan follows&nbsp;flat interest rate vs reducing balance&nbsp;calculations.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Which_Should_You_Choose\"><\/span>Which Should You Choose?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Always ask the lender which interest calculation method is being used before comparing loan offers.\u00a0<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Compare the total repayment amount rather than just the advertised interest rate or EMI.\u00a0<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>For longer loan tenures, reducing balance interest\u00a0generally results\u00a0in\u00a0substantial\u00a0savings.\u00a0<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Review the effective annual borrowing cost instead of relying on the flat-rate percentage alone.\u00a0<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Understanding the\u00a0difference between flat rate and reducing rate\u00a0helps you avoid paying significantly more over the life of your loan.\u00a0<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>When evaluating\u00a0EMI flat vs reducing,\u00a0remember that similar EMIs can still result in\u00a0very different\u00a0total repayment costs.\u00a0<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Understanding&nbsp;flat interest rate vs reducing interest rate&nbsp;is essential before choosing a personal loan. Although flat-rate loans may appear cheaper because of their lower advertised rates, they often result in higher total interest payments. Most borrowers benefit more from reducing balance loans because interest is charged only on the outstanding principal. Before signing any loan agreement, always compare the effective borrowing cost rather than just the advertised interest rate to make an informed financial decision.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If\u00a0you&#8217;re\u00a0looking for transparent borrowing costs, consider choosing a lender that lets you\u00a0<a href=\"https:\/\/www.fatakpay.com\/personal-loan\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>apply for a personal loan<\/strong><\/a>\u00a0with reducing balance interest, as this method\u00a0generally results\u00a0in lower overall interest than flat-rate loans.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs_on_Flat_vs_Reducing_Interest_Rate\"><\/span>FAQs on Flat vs Reducing Interest Rate&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_difference_between_flat_and_reducing_interest_rate\"><\/span>What is the difference between flat and reducing interest rate?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Flat interest is calculated on the original loan amount throughout the tenure, whereas reducing balance interest is calculated only on the outstanding principal after each EMI payment.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Which_is_cheaper_%E2%80%93_flat_rate_or_reducing_balance_rate\"><\/span>Which is cheaper &#8211; flat rate or reducing balance rate?\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In most cases, reducing balance interest rates result in lower total borrowing costs than flat interest rates.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Do_banks_use_flat_rate_or_reducing_rate_for_personal_loans\"><\/span>Do banks use flat rate or reducing rate for personal loans?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Most banks in India use the reducing balance method for personal loans, while some NBFCs and informal lenders may still offer flat-rate loans.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Can_a_flat_rate_loan_actually_cost_more_than_a_reducing_rate_loan\"><\/span>Can a flat rate loan actually cost more than a reducing rate loan?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Yes. Even though the advertised flat rate may appear lower, the total interest paid can be significantly higher because interest is charged on the original principal throughout the loan tenure.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_do_I_convert_a_flat_rate_to_its_reducing_rate_equivalent\"><\/span>How do I convert a flat rate to its reducing rate equivalent?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The exact conversion depends on the loan amount, tenure, and repayment schedule. You can ask the lender for the effective reducing-rate equivalent or compare the total repayment amounts of both loan options.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_EMI_the_same_under_both_flat_and_reducing_rate_methods\"><\/span>Is EMI the same under both flat and reducing rate methods?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The EMI amount may appear similar in some cases, but the interest calculation differs. Under the reducing balance method, the interest portion decreases with each EMI, resulting in lower overall borrowing costs.&nbsp;<\/p>\n\n\n\n<script type=\"application\/ld+json\"> \n{ \n  \"@context\": \"https:\/\/schema.org\/\", \n  \"@type\": \"BreadcrumbList\", \n  \"itemListElement\": [{ \n    \"@type\": \"ListItem\", \n    \"position\": 1, \n    \"name\": \"Home\", \n    \"item\": \"https:\/\/www.fatakpay.com\" \n  },{ \n    \"@type\": \"ListItem\", \n    \"position\": 2, \n    \"name\": \"Blog\", \n    \"item\": \"https:\/\/www.fatakpay.com\/blog\/\" \n  },{ \n    \"@type\": \"ListItem\", \n    \"position\": 3, \n    \"name\": \"Personal Loan\", \n    \"item\": \"https:\/\/www.fatakpay.com\/blog\/personal-loan\/\" \n  },{ \n    \"@type\": \"ListItem\", \n    \"position\": 4, \n    \"name\": \"Flat vs Reducing Interest Rate\", \n    \"item\": \"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/\" \n  }] \n} \n<\/script> \n\n\n\n<script type=\"application\/ld+json\"> \n{ \n  \"@context\": \"https:\/\/schema.org\", \n  \"@type\": \"BlogPosting\", \n  \"mainEntityOfPage\": { \n    \"@type\": \"WebPage\", \n    \"@id\": \"https:\/\/www.fatakpay.com\/blog\/personal-loan\/flat-vs-reducing-interest-rate\/\" \n  }, \n  \"headline\": \"Flat vs Reducing Interest Rate: Full Comparison\", \n  \"description\": \"Compare flat interest rate vs reducing balance interest rate, see how each affects your total repayment, and learn which method banks prefer for loans.\", \n  \"image\": \"https:\/\/www.fatakpay.com\/navbar-assest\/Logo-2.png\", \n  \"author\": { \n    \"@type\": \"Organization\", \n    \"name\": \"FatakPay\", \n    \"url\": \"https:\/\/www.fatakpay.com\" \n  }, \n  \"publisher\": { \n    \"@type\": \"Organization\", \n    \"name\": \"FatakPay\", \n    \"logo\": { \n      \"@type\": \"ImageObject\", \n      \"url\": \"https:\/\/www.fatakpay.com\/navbar-assest\/Logo-2.png\" \n    } \n  }, \n  \"datePublished\": \"2026-07-03\", \n  \"dateModified\": \"2026-07-03\" \n} \n<\/script> \n\n\n\n<script type=\"application\/ld+json\"> \n{ \n  \"@context\": \"https:\/\/schema.org\", \n  \"@type\": \"FAQPage\", \n  \"mainEntity\": [{ \n    \"@type\": \"Question\", \n    \"name\": \"What is the difference between flat and reducing interest rate?\", \n    \"acceptedAnswer\": { \n      \"@type\": \"Answer\", \n      \"text\": \"Flat interest is calculated on the original loan amount throughout the tenure, whereas reducing balance interest is calculated only on the outstanding principal after each EMI payment.\" \n    } \n  },{ \n    \"@type\": \"Question\", \n    \"name\": \"Which is cheaper - flat rate or reducing balance rate?\", \n    \"acceptedAnswer\": { \n      \"@type\": \"Answer\", \n      \"text\": \"In most cases, reducing balance interest rates result in lower total borrowing costs than flat interest rates.\" \n    } \n  },{ \n    \"@type\": \"Question\", \n    \"name\": \"Do banks use flat rate or reducing rate for personal loans?\", \n    \"acceptedAnswer\": { \n      \"@type\": \"Answer\", \n      \"text\": \"Most banks in India use the reducing balance method for personal loans, while some NBFCs and informal lenders may still offer flat-rate loans.\" \n    } \n  },{ \n    \"@type\": \"Question\", \n    \"name\": \"Can a flat rate loan actually cost more than a reducing rate loan?\", \n    \"acceptedAnswer\": { \n      \"@type\": \"Answer\", \n      \"text\": \"Yes. Even though the advertised flat rate may appear lower, the total interest paid can be significantly higher because interest is charged on the original principal throughout the loan tenure.\" \n    } \n  },{ \n    \"@type\": \"Question\", \n    \"name\": \"How do I convert a flat rate to its reducing rate equivalent?\", \n    \"acceptedAnswer\": { \n      \"@type\": \"Answer\", \n      \"text\": \"The exact conversion depends on the loan amount, tenure, and repayment schedule. You can ask the lender for the effective reducing-rate equivalent or compare the total repayment amounts of both loan options.\" \n    } \n  },{ \n    \"@type\": \"Question\", \n    \"name\": \"Is EMI the same under both flat and reducing rate methods?\", \n    \"acceptedAnswer\": { \n      \"@type\": \"Answer\", \n      \"text\": \"The EMI amount may appear similar in some cases, but the interest calculation differs. Under the reducing balance method, the interest portion decreases with each EMI, resulting in lower overall borrowing costs.\" \n    } \n  }] \n} \n<\/script> \n","protected":false},"excerpt":{"rendered":"<p>When comparing personal loan offers, most borrowers focus only on the advertised interest rate. However, the method used to calculate interest can significantly affect the total amount you repay. Understanding&nbsp;flat interest rate vs reducing interest rate&nbsp;helps you compare loans accurately and choose the option that truly costs less over the loan tenure.&nbsp; What Is a<\/p>\n","protected":false},"author":1,"featured_media":10201,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[180],"tags":[],"class_list":["post-10187","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-loan"],"_links":{"self":[{"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/posts\/10187","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/comments?post=10187"}],"version-history":[{"count":1,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/posts\/10187\/revisions"}],"predecessor-version":[{"id":10188,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/posts\/10187\/revisions\/10188"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/media\/10201"}],"wp:attachment":[{"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/media?parent=10187"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/categories?post=10187"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fatakpay.com\/blog\/wp-json\/wp\/v2\/tags?post=10187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}