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Loan Calculator: Flat vs Reducing Balance

Enter the amount, the rate your lender quotes and the term to see your monthly payment, total cost and the true yearly rate, with a month-by-month schedule.

How is the interest quoted?
Interest rate

Reducing: charged only on what you still owe.

Loan term
More options (fees)

A percentage of the loan, taken off what you receive (for example a management or insurance fee).

Your result appears here

Enter the loan amount, the interest rate and how long you will take to repay it. The result updates as you type.

An estimate. Your lender's schedule, fees and rounding may differ, so check the written offer.

How repayments are calculated

Reducing balance: each month you pay interest on the balance you still owe, and the rest of your instalment repays principal. The level instalment is P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the amount, r the monthly rate and n the number of months.

Flat rate: interest is the amount × the rate × the time, charged on the original amount for the whole term. You repay (amount + interest) in equal instalments.

The same 20% costs very differently

A ₦500,000 loan for 12 months at 20% a year, quoted two ways:

The same headline rate on a reducing-balance and a flat basis
 Reducing balanceFlat rate
Monthly payment₦46,317₦50,000
Total interest₦55,807₦100,000
Effective annual rate21.9%41.3%

That is why it pays to ask whether a rate is flat or reducing, and to compare the effective annual rate and the total repayable, not the headline percentage.

Frequently asked questions

What is the difference between flat rate and reducing balance?

With a flat rate, interest is charged on the full amount you borrowed for the whole term, even though you are repaying it as you go. With a reducing balance, interest is charged only on what you still owe, so it falls each month. The same headline rate costs much more when it is flat.

How do I know which one my lender uses?

Ask, and get the total repayable and the monthly instalment in writing. Banks usually quote reducing-balance rates, while some salary-advance, car and microfinance loans quote flat or monthly rates. If you know the monthly instalment, enter the amount, term and a rate and adjust it until the payment matches.

What is the effective annual rate?

It is the true yearly cost of the loan. It is the monthly rate that makes your instalments exactly repay the money you actually received (after any upfront fee), compounded over twelve months: (1 + monthly rate)^12 − 1. Lenders sometimes quote a simpler figure (the monthly rate times twelve), which is lower.

How are fees treated?

An upfront fee (such as management or insurance) is taken off the amount you receive, but you still repay the full loan. That raises the effective rate, because you pay interest on money you never received.

How is a per-month rate handled?

Choose "% per month" if your lender quotes, say, 5% a month. On a reducing balance that rate is applied to the balance each month. On a flat basis it is charged on the original amount for every month of the term.

Does this site store my figures?

No. The calculation runs in your browser and nothing you enter is sent or saved.

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