Two lenders quote you a loan. One says 12%, the other says 20%. Obviously the 12% is cheaper, right? Not necessarily. If the 12% is a flat rate and the 20% is a reducing rate, the flat one can actually cost you more. This is the most common way a loan looks cheaper than it is.
A flat rate charges interest on the full original amount for the whole tenure, even as you pay the loan down. A reducing balance rate charges interest only on what you still owe, which shrinks every month. Same headline percentage, very different cost.
Take a ₹1,00,000 loan over 12 months.
Read that again. The 12% flat rate costs about ₹839 more than the 20% reducing rate on the very same loan. In fact, a 12% flat rate on a one year loan works out to roughly 21.5% per year on a reducing basis. The flat number is less than half the truth.
The honest way to compare is APR, the annual percentage rate. It expresses the cost on a reducing basis and folds in the processing fee, so two offers become directly comparable. Whenever a lender leads with a low flat rate, ask for the APR before you decide.
We never quote a flat rate. Every Bindaas loan is priced on a reducing balance, and your Key Fact Statement shows the APR, the full schedule and the total cost before you sign. You can see the same math yourself on our EMI calculator. No trick, no asterisk.