A flat rate charges interest on the full loan for the whole term, so it costs more than it sounds. ₹1,00,000 at 10% flat for 24 months means ₹20,000 interest and a ₹5,000 EMI: that is 18.16% a year reducing (IRR), or ₹1.51 sekda a month on what you still owe.
How a flat rate EMI is calculated
With a flat rate, the interest is worked out once, on the full loan, for the whole term. It is added to the loan and the total is split into equal monthly instalments. Nothing comes off the interest as you repay.
Flat interest = loan × flat rate × months ÷ 12 ÷ 100
EMI = (loan + flat interest) ÷ months
Flat to reducing rate (IRR): how it is converted
The reducing rate, which dealers and lenders also call the IRR, is the rate at which the flat EMIs repay the loan when interest is charged only on what you still owe. There is no one-line formula for it, so the calculator finds it by narrowing down the rate until 24 EMIs of ₹5,000 repay ₹1,00,000 exactly: 18.16% a year. In Excel or Google Sheets, =RATE(24, -5000, 100000)*12 gives the same.
That is the rate to compare with a bank's quote or with sekda × 12: 18.16% reducing is ₹1.51 sekda a month. The calculator also shows the same flat rate over 12, 18, 24, 36 and 48 months; for full charts, see flat vs reducing explained.
Rule of thumb: reducing is about 1.7 to 1.8 times flat
For flat rates from 8% to 18% on loans of 1 to 3 years, the reducing rate works out at 1.7 to 1.83 times the flat rate. 10% flat is 17.97% over 12 months, 18.16% over 24 and 17.92% over 36. Over 4 to 5 years the multiple drops to 1.6 to 1.79.
It never reaches 2, so "flat × 2" overstates the real rate, and so does a fixed 1.84 at these rates and periods. Use the rule for a quick check and the calculator for the exact figure.
Two-wheeler, used car and consumer loan quotes
Three made-up quotes of the kind dealers give, each with a processing fee. None is any lender’s actual offer. Type one into the calculator above, or enter your own quote.
| Quote | EMI | Reducing rate (IRR) | True rate with fee and advance EMIs |
|---|---|---|---|
| Two-wheeler: ₹80,000 at 9% flat, 24 months, ₹1,000 fee, 1 advance EMI | ₹3,933.33 | 16.43% | 19.38% |
| Used car: ₹4,00,000 at 11% flat, 48 months, ₹5,000 fee | ₹12,000 | 19.19% | 19.9% |
| Phone or appliance: ₹40,000 at 12% flat, 12 months, ₹500 fee, 2 advance EMIs | ₹3,733.33 | 21.46% | 34.62% |
The fee and advance EMIs matter most on short loans. On the 12-month appliance loan they lift the rate from 21.46% to 34.62%; on the 48-month car loan, only from 19.19% to 19.9%.
Processing fee and advance EMIs on a flat-rate loan
A fee cut from the loan, and EMIs collected on the day you take it, both leave less money in your hand while the EMIs stay the same. The true rate is the reducing rate at which the remaining EMIs repay what you actually got. On ₹1,00,000 at 10% flat for 24 months, two advance EMIs leave ₹90,000 in hand against 22 more EMIs of ₹5,000: 21.82% a year, not 18.16%.
Banks and NBFCs must show the Annual Percentage Rate (APR), the yearly cost with all charges, in a Key Fact Statement before you sign a retail loan. Ask for it and check it against the true rate here. Our figure is our own calculation, not the RBI's exact APR method.
Reducing to flat rate: the other way round
Choose Reducing rate (IRR) in the calculator above to see what a bank's rate means in flat terms: the flat rate that costs the same total interest. ₹1,00,000 at 18% reducing for 24 months has an EMI of ₹4,992.41 and ₹19,818 interest, which is 9.91% flat. This is how to read an offer quoted as a reducing rate against one quoted flat.
Already paying an EMI and want its rate? Use the EMI to interest rate calculator, which also counts GST on the fee and other charges.
7 short answersFlat rate, IRR and EMI: common questions
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How do I calculate a flat interest rate?
Find the total interest (EMI × months − loan), divide it by the loan and by the years, and multiply by 100. An EMI of ₹5,000 for 24 months on ₹1,00,000: ₹5,000 × 24 − ₹1,00,000 = ₹20,000, and ₹20,000 ÷ ₹1,00,000 ÷ 2 × 100 = 10% flat.
How do I calculate a monthly flat rate?
Divide the yearly flat rate by 12, or multiply a monthly one by 12. ₹1.5 sekda flat, that is 1.5% a month on the full loan, is 18% a year flat. Over 24 months that equals 31.46% reducing, or ₹2.62 sekda on what you still owe.
What is the flat rate of interest in a bike loan?
There is no single rate: each lender and offer sets its own. What matters is what the flat rate converts to. A quote of 9% flat for 24 months is 16.43% reducing, and with a ₹1,000 fee and one advance EMI on ₹80,000 it is 19.38%. Ask for the APR in the Key Fact Statement.
What does IRR mean on a loan quote?
IRR (internal rate of return) is the reducing rate at which your EMIs repay the loan, with interest charged only on what you still owe. It is the rate to compare between offers. A used-car quote of 11% flat for 48 months has an IRR of 19.19%; counting a ₹5,000 fee, 19.9%.
How do I calculate EMI with IRR?
Use the EMI formula with the IRR as the rate: EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where r = IRR ÷ 12 ÷ 100. ₹1,00,000 at 18.16% for 24 months gives ₹5,000, the same EMI as 10% flat. See the EMI formula, step by step.
Can I convert a reducing rate to a flat rate?
Yes. Work out the EMI at the reducing rate, take the total interest (EMI × months − loan), then divide by the loan and the years. ₹1,00,000 at 18% reducing for 24 months costs ₹19,818: 9.91% flat. Choose Reducing rate (IRR) in the calculator to do it for any rate.
Do advance EMIs increase the interest rate?
Yes. Paying EMIs on day one means you have less of the loan in hand but still pay the same EMIs. ₹1,00,000 at 10% flat for 24 months is 18.16% reducing; with two advance EMIs you get ₹90,000 and the real rate becomes 21.82%.
Every figure comes from one tested engine and is exact to the paisa. How we calculate