Understanding Flat Rate vs. Reducing Balance Loans

When you borrow money, the way interest is calculated can change how much you actually pay back, even at the same headline rate.

With a flat rate loan, interest is calculated once on the original amount you borrowed, for the full length of your loan, then split evenly across your monthly payments. Your payment amount stays exactly the same every month.

With a reducing balance loan, interest is recalculated each month on whatever balance you still owe. As you pay down the principal, the interest portion shrinks so your early payments include more interest, and later payments include more principal.

Neither method is inherently "better" they simply suit different needs. Flat rate loans are predictable and easy to budget for. Reducing balance loans often work out cheaper overall if you plan to pay down your balance steadily. Our live calculator shows you the real numbers for both before you apply, so you can decide with confidence.