1. What is the Reducing to Flat Rate Conversion?

The Reducing to Flat Rate conversion calculates the equivalent flat interest rate from a given reducing balance rate over a specific time period. This helps in comparing different loan structures on an equal basis.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Reducing Rate — The interest rate under reducing balance method (in decimal form)
• Time — Loan duration in years

Explanation: The formula accounts for the fact that under reducing balance method, the principal decreases over time, while flat rate applies to the original principal throughout.

3. Importance of Rate Conversion

Details: Converting between rate types helps borrowers compare loan products accurately and understand the true cost of borrowing when different calculation methods are used.

4. Using the Calculator

Tips: Enter the reducing rate as a decimal (e.g., 0.1 for 10%), and the time period in years. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why convert reducing rate to flat rate?
A: Conversion allows for easier comparison between loans using different interest calculation methods.

Q2: How does loan term affect the conversion?
A: Longer loan terms result in a greater difference between the reducing rate and equivalent flat rate.

Q3: Is flat rate always higher than reducing rate?
A: Yes, the equivalent flat rate is always higher than the reducing rate for the same loan.

Q4: Can this formula be reversed to get reducing rate from flat rate?
A: Yes, the formula can be rearranged to calculate reducing rate from a known flat rate.

Q5: Does this account for payment frequency?
A: This simplified version assumes annual payments. More complex formulas account for monthly payments.