Loan offer checker: flat rate and no-cost EMI

Two ways a loan can look cheaper than it is: a “flat rate” quote, and a “no-cost EMI”. This works out the real yearly rate behind each.
What are you checking?
A 'flat rate' quote
A 7% flat rate is about 12.8% a year on a reducing balance, or 14.5% once the fee is counted.
A flat rate charges interest on the full loan for the whole tenure, even as you repay it. The reducing-balance rate is the one comparable with home loans and bank quotes.
₹16,806
monthly instalment
₹1,05,000
interest over 36 months
₹11,800
fee including GST, usually deducted from the amount paid out

Check: a reducing-balance loan of ₹5,00,000 at 12.8% for 36 months has the same EMI, ₹16,806.

How it is worked out

Flat rate. Interest = loan × flat rate × years, charged on the full amount for the whole tenure. The EMI is (loan + interest) ÷ months. The calculator then finds the reducing-balance rate that gives the same EMI on the same loan, the rate a bank would quote for a home loan. If a processing fee is deducted from the amount paid out, the rate is worked out again on the smaller amount actually received.

No-cost EMI. The lender charges its usual interest, and the seller gives a discount equal to that interest, so the two cancel. What does not cancel: GST of 18% on the interest, the processing fee and GST on it, and any discount you would have got for paying in full.

Questions

What is the difference between flat and reducing interest rates?

A flat rate charges interest on the original loan for the whole tenure. A reducing rate charges interest only on what is still owed. A flat rate is roughly 1.8 times lower than the reducing rate with the same EMI, so a 7% flat rate over 3 years is close to 12.8% reducing.

Is a no-cost EMI really free?

The interest is usually offset by a discount, but GST at 18% on that interest and a processing fee are still paid, and you may give up a discount for paying in full.

Which rate should I compare between lenders?

Reducing-balance rates are the comparable figure. Lenders also state an annual percentage rate (APR) that includes fees; compare that across offers.

Educational calculator only, not financial, tax or investment advice. Results follow the formulas and the assumptions you enter; actual amounts depend on your lender, bank, employer and the rules that apply to you. Past performance does not indicate future results. Read the Disclaimer.