What does a flat rate really cost?
Some lenders quote a flat rate, where interest is charged on the full amount for the whole period. Convert it to the annual rate on reducing balance to compare offers fairly.
Estimates only. Every approved customer pays 4.9% p.a.; your approval and the amount we can lend depend on your assessment, and your adviser confirms your repayments before you sign.
How it works
With a flat rate, interest is worked out on the original amount for the whole period, even though you repay part of it every month. With reducing balance, interest is charged only on what you still owe.
Flat-rate interest = amount × flat rate × years, and the instalment = (amount + interest) ÷ months. The converter then finds the reducing-balance annual rate that gives the same instalment.
Worked example: RM 10,000 at 10% flat over 12 months is RM 1,000 of interest and instalments of RM 916.67. That's the same as about 17.97% p.a. on reducing balance. At our rate of 4.9% p.a., the same RM 10,000 is RM 855.62 a month with RM 267.40 of interest.
For terms of 1 to 3 years, the equivalent reducing-balance rate is roughly 1.8 to 1.9 times the flat rate. So even a low flat rate costs more than it looks: RM 20,000 at 3% flat over 24 months is RM 1,200 of interest, about 5.66% p.a. on reducing balance. At our 4.9% p.a., the same RM 20,000 over 24 months costs RM 1,036.76.
Always compare the annual rate on reducing balance, or the total amount you'll repay, not the headline flat rate.
Questions
Is a flat rate illegal?
No, but it can make a loan look cheaper than it is. Ask any lender for the annual rate and the total repayable, and check both in the loan agreement before you sign.
Is a flat-rate quote always more expensive than yours?
Not necessarily, so convert it first. A 10% flat rate over 12 months works out to about 17.97% p.a., far above our 4.9% p.a. Even 3% flat over 24 months is about 5.66% p.a., still above our 4.9% p.a. Both figures are annual rates on reducing balance, so they compare directly: on RM 20,000 over 24 months, that flat-rate loan costs RM 1,200 of interest against RM 1,036.76 with us. Also compare the total repayable, check for fees deducted from the payout, and ask how early settlement is worked out.
What should I ask a lender who quotes a flat rate?
Ask for the annual rate on reducing balance, the total amount payable, whether any fees are deducted from the payout, and how much you'd save by settling early. Some flat-rate loans calculate the early settlement rebate in a way that returns less interest than a reducing-balance loan would.
Why does another calculator show a slightly different rate?
Some calculators show an annual effective rate that compounds the monthly rate over 12 months, which comes out a little higher. Ours shows the annual rate on reducing balance (12 × the monthly rate), the same way we quote our own rates.
How do you quote your rates?
As an annual rate on reducing balance. Each monthly instalment carries interest of the outstanding balance × annual rate ÷ 12, so RM 10,000 at 4.9% p.a. has RM 40.83 of interest in month 1. Interest is counted by the day (annual rate ÷ 360) only for short-term loans and when you settle or prepay between due dates. Your monthly instalment and total interest are shown before you apply.
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Work out your monthly repayment first with our calculator. Your adviser confirms your rate before you sign, and applying doesn't commit you to borrow.