Flat vs Reducing Rate

Some dealers, NBFCs and gold/consumer-durable lenders quote a "flat rate" — say 8% — but flat rates charge interest on the ORIGINAL loan amount for the whole tenure, ignoring that you pay the principal down every month. Banks quote reducing-balance (diminishing) rates, where interest is charged only on what you still owe. An 8% flat rate is roughly a 14-15% reducing rate on a 5-year loan — almost double. This converter finds the reducing rate whose EMI exactly matches the flat quote, so you can compare like with like and see how much extra interest the flat rate hides. Reducing-balance rates are true compound rates — the same kind of number as an SIP or FD return, just working against you instead of for you — which is why they, and NOT flat rates, are what you should compare against an investment return.