Work out flat vs reducing interest rate instantly with clear inputs, formula shown and shareable results.
A flat rate charges interest on the original principal for the entire term, ignoring repayments. Solving for the reducing-balance rate that produces the same instalments shows the flat quote is worth roughly 1.8 times its stated value on a short term.
Flat versus reducing
Flat interest = P × rate × years; solve r in P = Σ instalment/(1+r)^t
Figures are estimates. Lenders apply their own rounding, fees and eligibility rules, and rates change. This is not financial advice — confirm the numbers with your lender.
For a level-instalment loan the reducing-balance equivalent is close to 1.8-1.9 times the flat rate.
It is simple to compute and quote, which is also what makes it easy to misread.