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Personal Loan True APR

Flat Rate vs Reducing Rate Personal Loan

Learn why a flat-rate personal-loan quote cannot be entered as an equivalent reducing rate and compare offers using APR instead.

Last reviewed: 16 July 2026

Direct answer

Why is a flat personal-loan rate different from a reducing-balance rate?

Flat interest is calculated on the original principal for the full tenure, while reducing-balance interest is calculated on the declining outstanding principal. The same percentage therefore produces very different EMIs and costs.

Worked example

Do not enter a 10% flat quote as 10% reducing. Ask for the reducing rate, full repayment schedule and KFS APR before using the calculator.

What to check

  • Identify the rate convention.
  • Compare total cash flows, not labels.
  • APR is more useful for comparing differently structured offers.

How the calculator approaches it

  1. 1.Calculate EMI from sanctioned principal, reducing rate and tenure.
  2. 2.Subtract attributable upfront charges and advance EMIs from the cash received.
  3. 3.Solve the monthly internal rate that equates net cash with later repayments.
  4. 4.Annualise the result and compare it with the lender Key Facts Statement.

Important limitation

Dates, broken-period interest, rounding and charge classification can change APR. The lender Key Facts Statement is the offer-specific disclosure to verify.

Primary sources

Related questions

Personal Loan APR with Processing Fee and GSTRs 5 Lakh Personal Loan True CostHow to Compare Two Personal Loan Offers

FAQs

Why is a flat personal-loan rate different from a reducing-balance rate?

Flat interest is calculated on the original principal for the full tenure, while reducing-balance interest is calculated on the declining outstanding principal. The same percentage therefore produces very different EMIs and costs.

Which calculator should I use for this question?

Use RupeeKit's Personal Loan True APR Calculator India and replace the example with your own current figures.

RupeeKit provides educational estimates only. This page is not personalised financial, investment, tax, legal or lending advice. Verify current rules, product documents and your own facts before acting.