Flat Rate Interest
Also called: flat interest rate
What is Flat Rate Interest?
Flat rate interest is charged on the original loan amount for the entire tenure, regardless of how much has already been repaid. The instalment stays the same, but so does the interest base.
Why Flat Rate Interest matters
Flat rates make loans look cheaper than they are. A 12% flat rate over three years costs roughly what a 21% reducing rate would, which is a large difference on a real loan.
Flat Rate Interest formula
Total interest = Principal × Flat rate × Years
EMI = (principal + total interest) ÷ number of months.
How Flat Rate Interest works in practice
Flat quoting is common in equipment finance and some non-bank lending. Convert to the effective reducing rate, or simply compare the total amount repayable across offers.
Worked example
₹5,00,000 at 12% flat for 3 years is ₹1,80,000 of interest — far more than a 12% reducing loan would cost.
Frequently asked questions
Because the number looks smaller. It is not dishonest, but it is not comparable to a reducing rate.