Duit Loan Guides · Understanding your rate
✓ A 60-second check tells you your real rateFlat rate or reducing rate — why your 10% loan may really cost 18%
Two lenders quote you two numbers. One says 13.99%, the other says 10.99%. The second sounds cheaper — and it can easily be the more expensive loan. That's not a trick or a scam: they're quoting two different ways of calculating interest, and both are legal. The problem is that nobody explains the difference, so borrowers compare numbers that aren't comparable. Here's what separates them, and the 60-second check that tells you what you're actually paying.
A flat (or fixed) rate charges interest on your full original loan amount for the whole tenure — even after you've repaid half of it. A reducing balance rate charges interest only on what you still owe, so the interest shrinks as you repay. Same quoted number, very different cost. As a rough guide, a flat rate is equivalent to roughly 1.7–1.8× that number on a reducing basis.
1. What actually happened
You were quoted a rate that sounded low, and the total you end up repaying feels higher than that rate implies. Almost always, you were quoted a flat rate and are mentally comparing it to a reducing one.
Take a real example. You borrow ₹1,00,000 for 12 months at 10% flat:
Total you repay: ₹1,00,000 + ₹10,000 = ₹1,10,000
Monthly EMI: ₹1,10,000 ÷ 12 = ₹9,167 On a reducing basis, that same loan is priced at roughly 18% — not 10%.
Why? Because by month six you've repaid about half the loan, but you're still paying interest calculated on the whole ₹1,00,000. You're being charged for money you no longer have.
Here's the same ₹1,00,000 seen both ways:
| What you're told | How interest is charged | What it really costs |
|---|---|---|
| 10% flat, 12 months | On the full ₹1,00,000, every month | ≈ 18% reducing |
| 12% flat, 36 months | On the full ₹1,00,000, every month | ≈ 21.2% reducing |
| 18% reducing, 12 months | Only on what you still owe | 18% — the number is the truth |
This is why a quoted 10.99% from one lender can cost you more than a quoted 13.99% from another. The first may be flat; the second reducing. The lower number is not automatically the cheaper loan.
2. Why lenders do this
It isn't necessarily deception — it's two conventions that grew up in different parts of the market, and a quoting habit nobody is required to translate for you.
In practice, banks typically quote on a reducing basis, while many NBFCs, fintechs and app-based lenders quote on a flat basis. A flat rate produces a smaller-looking number for the same economics, so it markets better. Two lenders can therefore advertise very different-looking rates for loans that cost about the same — or the cheaper-looking one can cost more.
Worth knowing: in India, retail term loans of this kind are booked on a reducing-balance method by regulated lenders. So the flat number is often a quoting convention sitting on top of a loan that is actually administered on reducing balance. That's exactly why the rate written in your loan documents may not match the number you were told on a call.
3. Can it be fixed?
That depends entirely on when you're reading this.
- Before you sign — yes, easily. Ask for the rate on a reducing basis, ask for the Key Fact Statement, and compare lenders on the same footing. This is the moment where the whole difference is in your hands.
- After you've signed — largely no. The pricing of that loan is set by the agreement. What remains available is prepaying or foreclosing early where your terms allow it, or refinancing with another lender later if you qualify for better pricing.
4. The 60-second check — find your real rate
You don't need a calculator or a formula. You need two numbers you already have: your EMI and your tenure.
Worked through, on a ₹1,00,000 loan over 36 months with an EMI of ₹3,778:
₹1,36,008 − ₹1,00,000 = ₹36,008 total interest
₹36,008 ÷ 3 years = ₹12,002 interest per year
₹12,002 ÷ ₹1,00,000 = 12% per year, flat Which is about 21.2% on a reducing basis — the number that actually describes this loan.
That's the whole test. If the answer is far from the rate you were quoted, you were quoted flat.
5. What you should do next
In order:
- Run the 60-second check above on any offer in front of you.
- Ask the one question: "Is this rate flat or reducing?" Then ask for the reducing-basis equivalent.
- Read the Key Fact Statement before signing — not after. It's your right to have it, and it exists precisely so pricing can't hide.
- Compare like with like. Convert every quote to a reducing basis, or compare total repayment amounts, which sidesteps the whole issue.
- Check the fees too. Processing fees, insurance and charges sit outside the headline rate but inside your real cost — which is why the annualised figure in the KFS matters more than the rate alone.
6. Before your next loan
Carry three habits into every future application, and this problem never happens to you again:
- Ask whether the quoted rate is flat or reducing — every single time
- Insist on the Key Fact Statement before signing, and actually read the rate line
- Compare lenders on total amount repayable, which no quoting convention can disguise
Rates are also risk-based: the same loan is priced differently for different profiles, and pricing across the market moves with funding costs over time. So a higher quote isn't automatically unfair — but you should always be able to see what it is.
Work out your real rate — indicative calculator
Set the loan you're looking at. Flip between Flat and Reducing and watch the rate change while the EMI stays identical — same loan, two different-looking numbers. That is the entire point of this page.
Where each EMI goes
See the full month-by-month schedule
Processing fee is shown separately because it is deducted from what reaches your account — it is not part of the EMI. Interest is calculated on a reducing balance with monthly rests. The rate range reflects what lenders on our panel typically offer.
Comparing lenders? Start on the same footing
The cleanest way to avoid this trap is to compare lenders whose pricing you can actually see side by side, before you make a formal application. Answer a few simple questions — no phone number, no documents, no CIBIL impact — and we'll show you which participating RBI-regulated lender is most likely to approve you. Rates and terms are always set by the lender, and the Key Fact Statement they issue is where the final, binding numbers live.
Straight answers
What is the difference between flat rate and reducing rate?
A flat rate charges interest on your full original loan amount for the entire tenure, even as you repay. A reducing rate charges interest only on what you still owe, so it falls as your principal falls. For the same quoted number, flat always costs more.
A 10% flat rate equals what reducing rate?
On ₹1,00,000 over 12 months, about 18% reducing. As a rough guide, multiply a flat rate by roughly 1.7–1.8 to get the reducing equivalent — the exact multiple shifts with tenure, so use the EMI check for a precise answer.
How do I calculate the real interest on my loan?
EMI × number of months − loan amount = total interest. An EMI of ₹3,778 over 36 months on ₹1,00,000 means ₹1,36,008 repaid and ₹36,008 of interest — about 12% a year flat, roughly 21.2% reducing.
What is a Key Fact Statement and why does it matter?
A standardised summary of your loan's real terms that RBI requires lenders to give every retail borrower before signing. It states the interest rate, the annualised cost including fees, and the total repayable. If a verbal quote and the KFS disagree, the KFS is what you're signing.
Can I switch from flat to reducing after taking the loan?
Generally no — pricing is set by the agreement. After signing, your options are prepaying or foreclosing early where the terms allow, or refinancing elsewhere later if you qualify. The time to ask is before you sign.