Two loan offers showing the same percentage may have very different costs. Use this worksheet to compare a flat-rate quote with a reducing-balance quote on the same principal and repayment term. The interest-method explainer covers the definitions; this page focuses on checking offers.
Copy these fields from each quote
- Amount actually received after upfront deductions.
- Nominal principal used to calculate interest.
- Rate, whether annual or monthly, and whether flat or reducing.
- Number, amount and timing of payments.
- Mandatory fees, insurance, final balloon and early-payment terms.
Do not compare the headline percentages until the principal, term and fee assumptions match.
Worked example: 100,000 over 12 months
For a hypothetical 12% annual flat rate with no fees, interest is 100,000 × 0.12 × 1 = 12,000. Total repayment is 112,000 and each of 12 equal payments is 9,333.33 before final rounding adjustment.
For a hypothetical 12% nominal annual reducing rate with monthly payments, the monthly rate is 0.01. The payment is 100000*0.01/(1-(1.01)^(-12)) = 8,884.88. Using the unrounded payment gives total repayment of 106,618.55 and interest of 6,618.55. The roughly 5,381.45 difference follows from charging the reducing rate on the outstanding balance.
Audit the first payment
Reducing interest for month one is 1,000, leaving approximately 7,884.88 of the payment to reduce principal. The next balance is about 92,115.12, so next month’s interest is about 921.15. This declining interest charge is the key check in an amortization schedule.
Account for fees separately
If a lender deducts 2,000 upfront from a 100,000 principal, only 98,000 reaches you even if payments are calculated on 100,000. Compare that actual cash received with the complete payment stream. A simple interest-total comparison does not calculate a legally defined APR, whose required inclusions can depend on jurisdiction.
Questions to ask before comparing
- Does the rate apply to the original principal throughout?
- Are fees paid upfront, financed or collected with each payment?
- Is there a balloon payment or a different first-payment date?
- What happens to interest and fees after early repayment?
Use the EMI calculator for a reducing-balance example. Do not enter a flat annual rate there and label the result the lender’s payment. Reconcile the output with the written quote and its rounding rules.
Examples are hypothetical arithmetic, not lending advice or an APR disclosure. The written agreement controls the actual charges.