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Flat vs Reducing Interest Calculator : Cost Comparison & Effective APR

A 10% flat rate is NOT the same as a 10% reducing rate. This calculator provides a direct, head-to-head comparison showing how much money you save with reducing balance and reveals the true effective APR of any flat rate deal.

Interactive Calculator

100% Client-Side Engine
%
yrs
Total Money Saved with Reducing Balance
$3,310.36 (45.98% interest saved)
Flat Rate Model (9%)Costly Method
Monthly Payment:$566.67/mo
Total Interest:$7,200
Total Repayment:$27,200
Real Effective APR: 15.99%
Reducing Balance (9%)Recommended
Monthly Payment:$497.7/mo
Total Interest:$3,889.64
Total Repayment:$23,889.64
Saves $3,310.36 over loan life

Step-by-Step Examples

$20,000 Loan for 4 Years at 9% Stated Rate

Flat vs reducing comparison.

Inputs: Principal: $20,000, Stated Rate: 9%, Term: 4 Years
Result: Flat Interest: $7,200, Reducing Interest: $3,904.60, Money Saved: $3,295.40 (45.8% saved)

The reducing balance method saves $3,295.40 in pure interest. The 9% flat rate actually has an effective APR of 16.27%.

How to Use This Tool

  1. Enter principal loan amount.
  2. Enter stated interest rate percentage.
  3. Specify loan term in years.
  4. View side-by-side comparison of monthly payments, total interest, and percentage savings.

Frequently Asked Questions

Because flat rates appear lower on marketing brochures (e.g. "Only 7% flat!") even though the true annual percentage rate (APR) is around 13%.

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