How the interest rate is found
The EMI formula can't be solved directly for the rate, so the calculator finds the monthly rate r that makes
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
true for your loan amount P, EMI and number of months n, then multiplies it by 12 for the annual rate.
Example: a ₹5,00,000 loan repaid as ₹16,134 a month for 3 years has an interest rate of 10% a year.
Why check the rate?
Dealers and lenders sometimes quote a "flat" rate, which looks lower than the true reducing-balance rate. A 6% flat rate over 3 years is roughly an 11% reducing rate. Enter the EMI you're offered to see the real figure.
Frequently asked questions
What is a flat interest rate?
Flat interest is charged on the full original amount for the whole term, even as you repay. It's much costlier than the same number quoted as a reducing-balance rate.
Does this include processing fees?
No. To include fees, subtract them from the loan amount: the result is then your effective rate including fees.