A flat rate charges interest on the full amount for the whole term, even after you have paid most of it back. So 6% flat over 5 years is about 10.85% a year on what you still owe, the way home loans and the APR are counted.
Why it is higher
With a flat rate, the interest is fixed on day one: amount × rate × years. By the last year you owe very little, but you still pay a full year’s interest on the whole amount.
- Interest
- ₹5,00,000 × 6% × 5 = ₹1,50,000
- EMI
- ₹10,833
- Real rate on what you owe
- 10.85%
The same EMI on a normal loan at 10.85% pays off ₹5 lakh in 5 years.
What to ask the lender
- The APR in the Key Facts Statement. RBI makes banks and NBFCs show it for retail loans, with their fees in it (not penalties).
- The charge for closing the loan early.
- Compare loans by APR, never by the flat rate.
Sources
Last checked 3 Nov 2026 · by BachatLab