Using flat rate method, the EMI to repay a loan of ₹ 20,000 in $2\frac{1}{2}$ years at an interest rate of 8% p.a. is : (A) ₹ 700 (B) ₹ 800 (C) ₹ 900 (D) ₹ 100

> [!TLDR] > Flat-rate total $=20000+4000=\text{₹}24000$ over $30$ months $\Rightarrow$ EMI $=\text{₹}800$. > [!FORMULA] > Flat-rate: $\text{Interest}=P\cdot r\cdot t$; $\text{EMI}=\dfrac{P+\text{Interest}}{\text{number of months}}$. 1. Interest $=20000\times\dfrac{8}{100}\times 2.5=\text{₹}4000$. …

Using flat rate method, the EMI to repay a loan of ₹ 20,000 in 2(1)/(2) years at an interest rate of 8% p.a. i

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Concept understanding — Flat Interest Rate EMI

Flat Interest Rate EMI — From Intuition to Precision

Imagine you borrow ₹1,00,000 from a bank for 1 year. The bank says: "We charge 12% interest per year, flat." What does "flat" mean here?

The intuition: The bank calculates the total interest on the entire original loan amount for the full loan tenure, regardless of how much you've already repaid. You pay interest on the full ₹1,00,000 for the whole year — even though you're paying back the principal bit by bit each month.

Step-by-step breakdown

Let’s take a concrete example:

Loan amount (P): ₹1,00,000
Annual flat interest rate (R): 12%
Tenure (N): 1 year (12 months)

Step 1: Total interest for the year

Interest = Principal × Rate × Time

= ₹1,00,000 × (12/100) × 1 = ₹12,000

Step 2: Total amount to repay

Principal + Interest = ₹1,00,000 + ₹12,000 = ₹1,12,000

Step 3: Monthly EMI

EMI = Total amount ÷ Number of months

= ₹1,12,000 ÷ 12 = ₹9,333.33 per month

Note

Every month you pay ₹9,333.33. The interest portion in each EMI is not decreasing — it's a fixed ₹1,000 per month (₹12,000 ÷ 12). The principal repaid each month is also fixed: ₹8,333.33.

The precise formula

\text{EMI}_{\text{flat}} = \frac{P + (P \times R \times N)}{N}

Where:

$P$ = original loan principal
$R$ = annual flat interest rate (as a decimal, e.g., 0.12 for 12%)
$N$ = loan tenure in months (or years, as long as consistent)

Alternatively, in a cleaner form:

\text{EMI}_{\text{flat}} = \frac{P}{N} + \frac{P \times R}{12}

The first term is the fixed principal repayment per month. The second term is the fixed monthly interest.

Why "flat" is important — and a warning

Watch out

A flat interest rate looks lower than the equivalent reducing-balance rate, but it's actually more expensive.

In our example, 12% flat is equivalent to about 21.5% reducing-balance interest — nearly double. …

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Flat-rate total $=20000+4000=\text{₹}24000$ over $30$ months $\Rightarrow$ EMI $=\text{₹}800$ .

\text{Interest}=P\cdot r\cdot t

Interest $=20000\times\dfrac{8}{100}\times 2.5=\text{₹}4000$ . …

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Q.Using flat rate method, the EMI to repay a loan of ₹ 20,000 in 2122\frac{1}{2}221​ years at an interest rate of 8% p.a. is : (A) ₹ 700 (B) ₹ 800 (C) ₹ 900 (D) ₹ 100

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Q.Using flat rate method, the EMI to repay a loan of ₹ 20,000 in $2\frac{1}{2}$ years at an interest rate of 8% p.a. is : (A) ₹ 700 (B) ₹ 800 (C) ₹ 900 (D) ₹ 100

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