Flat vs real rate.
Car and consumer loans are often quoted at a flat rate. See the real reducing rate you are paying.
What a flat rate hides
A flat rate charges interest on the full loan for the whole tenure, even though you repay it month by month. A reducing rate charges interest only on what you still owe. So a 7% flat rate costs far more than a 7% reducing rate, often close to double.
How to use it
- Enter the loan amount, the flat rate quoted and the tenure.
- See the equivalent reducing rate, the EMI and the total interest.
- Compare that real rate with bank loan offers before you sign.
Questions.
Why do dealers quote flat rates?
A flat rate looks smaller than the real rate for the same EMI. Always ask for the reducing rate or the annual percentage rate in the Key Facts Statement.
Is the EMI the same under both?
For the same loan, the EMI is what it is; the flat rate is just a different way of describing it. The calculator finds the reducing rate that gives the same EMI.
Does this apply to personal loans?
Yes, wherever a flat rate is quoted. Most bank personal and home loans already use reducing rates.
Want a lower rate?
Ask 23 banks and housing finance companies for a lower rate on the loan you already have, at their branch nearest you. Free, from your own email.