1. What is Flat Vs Reducing Interest?

Flat interest is calculated on the original principal amount throughout the loan tenure, while reducing interest is calculated on the outstanding principal balance which decreases as you make repayments. Reducing interest typically results in lower total interest payments.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

• Principal — Original loan amount ($)
• Rate — Interest rate (decimal form)
• Tenure — Loan duration in years

Explanation: The reducing interest formula provides an approximation as the exact calculation depends on the repayment frequency and schedule.

3. Importance of Interest Calculation

Details: Understanding the difference between flat and reducing interest helps borrowers make informed decisions about loans and compare different lending options effectively.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and tenure in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Which is better - flat or reducing interest?
A: Reducing interest is generally better for borrowers as it results in lower total interest payments over the loan term.

Q2: Why is the reducing interest an approximation?
A: The exact reducing interest depends on repayment frequency (monthly, quarterly) and the specific repayment schedule, so we use a standard approximation.

Q3: How do I convert percentage rate to decimal?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 7.25% becomes 0.0725.

Q4: Can I use this for monthly calculations?
A: Yes, but ensure all values use consistent time units (either all in years or all in months).

Q5: Which type of interest is more common?
A: Reducing interest is more common in modern lending practices, especially for mortgages and personal loans.