Flat vs Reducing Rate Decoder
Car dealerships and consumer durable stores often quote a low "Flat Interest Rate". Use this tool to mathematically decode the real interest rate they are charging you.
The Truth Ledger
Mathematical Reality
By charging you 7% "Flat", the bank is actually collecting ₹80,964 more in interest than if they gave you a legitimate 7% reducing balance loan.
Your real interest rate is nearly double what they advertised.
The "Flat Rate" Trap Explained
In a standard Reducing Balance loan, your interest is calculated only on the remaining outstanding principal. As you pay EMIs, your principal drops, so your interest drops.
In a Flat Rate loan, the interest is calculated on the entire original principal for the entire tenure, completely ignoring the fact that you are paying back the money every month. Because of this, a "7% Flat Rate" is mathematically equivalent to a ~13% Reducing Balance rate. It is a marketing gimmick designed to trick consumers into thinking the loan is cheap.