Reducing balance method
Interest is calculated each month only on the remaining principal balance — as you pay down the loan, the interest portion shrinks and more of each payment goes toward the principal. This is the most common method used by banks for mortgages and personal loans.
Flat rate method
Interest is calculated once on the full original loan amount for the entire term, regardless of how much you've already paid off. This usually results in a higher effective interest rate than reducing balance, even with the same stated rate.
Important disclaimer
This result is an estimate for comparison purposes only, and may differ from your bank or lender's actual offer due to fees, insurance, and their exact calculation method.