Reduced Vs Flat Rate Calculator

Compare: Flat Total vs Reducing Total

\[ \text{Comparison} = \text{Flat Total} - \text{Reducing Total} \]

Principal Amount:

USD

Interest Rate (%):

Term:

years

Calculation Type:

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1. What is Flat vs Reducing Rate?

Flat rate interest is calculated on the original principal amount for the entire loan term, while reducing balance interest is calculated on the outstanding principal which decreases as payments are made.

2. How Does the Calculator Work?

The calculator uses these formulas:

Flat Rate: \[ \text{Total} = P + (P \times r \times t) \]

Reducing Balance: \[ \text{Monthly Payment} = P \times \frac{i(1+i)^n}{(1+i)^n-1} \]

Where:

\( P \) — Principal amount
\( r \) — Annual interest rate (decimal)
\( t \) — Term in years
\( i \) — Monthly interest rate (annual rate / 12)
\( n \) — Total number of payments (term × 12)

3. Importance of Rate Comparison

Details: Understanding the difference helps borrowers choose the most cost-effective loan option and compare different loan products accurately.

4. Using the Calculator

Tips: Enter principal amount in USD, interest rate as percentage, term in years, and select calculation type. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: Which is better, flat or reducing rate?
A: Reducing balance is generally better for borrowers as it results in lower total interest payments.

Q2: When is flat rate typically used?
A: Flat rate is often used for short-term loans, personal loans, and some car loans.

Q3: How much can I save with reducing balance?
A: Savings depend on principal, rate, and term - use the calculator to compare specific scenarios.

Q4: Are there loans with both rate types?
A: Some loans may have features of both - always read the terms carefully.

Q5: Does this calculator account for fees?
A: No, this calculates interest only - actual loans may have additional fees.