Flat Rate Calculator
Calculate flat rate loan payments and compare with reducing balance to see the true cost.
Flat Rate vs Reducing Balance Calculator
Understand the real cost of flat rate interest and compare with effective rates
Understanding Flat Rate Loans
What is Flat Rate Interest?
Flat rate interest is calculated on the original loan amount for the entire term, regardless of repayments made. Unlike reducing balance where interest decreases as you pay down principal, flat rate charges the same interest throughout, making the effective cost much higher than it appears.
Flat Rate Calculation
- Total Interest: Principal × Rate × Years
- Monthly Payment: (Principal + Interest) ÷ Months
- Interest stays same each month
- Principal portion stays same each month
- Simple calculation but higher cost
Flat vs Reducing Balance
- 5% flat ≈ 9-10% reducing balance
- Flat rate appears lower but costs more
- Reducing balance = true market rate
- Always compare total interest paid
- Ask for effective/APR rate
Common Uses of Flat Rate
- Car loans and auto financing
- Hire purchase agreements
- Personal loans (some markets)
- Equipment financing
- Consumer credit