The monthly instalment on a reducing or a flat rate, the processing fee with GST, the effective yearly cost, and how much interest you skip if you close the loan early.
A reducing-balance EMI uses the standard formula. Interest each month is the opening balance times the yearly rate divided by 12. The instalment is rounded to the nearest rupee. The last instalment clears whatever principal is left, so the balance ends at zero.
A flat rate charges interest on the original amount for the whole tenure. Total interest is the loan times the rate times the years. The EMI is that interest plus the loan, divided by the months. You keep paying interest on money you have already repaid. That is why a flat quote looks cheaper than the reducing rate that costs the same in rupees.
A worked example
₹5,00,000 at 13% reducing for 3 years has an EMI of ₹16,847. Total interest is ₹1,06,491. With no fee, the effective yearly cost is 13.80%. It sits a little above 13% because the rate is charged every month, then expressed as a yearly figure.
The same ₹5,00,000 for 3 years at a flat 11% charges ₹1,65,000 of interest. The EMI is ₹18,472. That EMI matches a reducing rate of 19.57%. A rough shortcut says 11% flat is about twice the cost, near 20% reducing. On this 3-year loan the exact match is 19.57%. The gap moves with the tenure. A longer loan makes the flat rate look worse, because you pay interest on the full amount for more months.
The fee, GST, and the yearly cost
The processing fee is what you type, as a percent of the loan or as rupees. This page adds 18% GST to that fee and treats the total as deducted from the amount you receive. The effective yearly cost is the rate that makes those smaller receipts and the EMI schedule balance. It is the figure a key facts statement is meant to show, so you can compare two loans that quote different interest rates and different fees.
Closing early saves the interest that would have been charged on the later months. A foreclosure charge is a percent of the principal still left, and it comes off that saving. On a floating-rate loan to an individual, for a non-business purpose, sanctioned or renewed on or after 1 January 2026, there is no foreclosure charge. Tick Floating rate and the charge stays at zero. A fixed-rate loan can still carry a charge if the sanction letter disclosed it.
A home loan uses the same EMI maths on the EMI calculator. The home loan EMI guide walks through a year of a reducing-balance loan. This page does not add loan insurance.
This is an estimate for learning, not a sanction letter and not advice. Read the disclaimer.
Questions
What is a key facts statement?
It is the one-page sheet a lender must give you before you sign. The annual percentage rate on that sheet includes the interest and the charges, not the interest rate alone. The effective yearly cost on this page is the same idea: the EMI schedule after the processing fee and GST.
Can the lender charge me to close a floating-rate personal loan?
For a floating-rate loan to an individual, for a purpose other than business, sanctioned or renewed on or after 1 January 2026, the Reserve Bank says the lender cannot levy a prepayment charge. A fixed-rate loan can still carry a charge if the sanction letter disclosed it.
Why is a flat rate costlier than it looks?
Flat interest is calculated on the original amount for every month, even after you have paid part of the principal back. A reducing rate charges interest only on what is left. The rupee cost of a flat rate is therefore higher than the same quoted reducing rate.
A CIBIL score runs from 300 to 900. How the report is built, the one free report RBI requires each year, and what CIBIL itself says will move the number.
