Flat Rate Interest
Also known as: Simple Interest Method, Fixed Rate Method
Interest calculation method where interest is charged on the full original principal throughout the loan tenure.
Detailed Explanation
Flat rate interest is a misleading method where interest is calculated on the entire original loan amount for the complete tenure, regardless of principal repayments. For example, on a ₹10 lakh loan at 8% flat rate, you pay 8% on ₹10 lakh every year even after repaying ₹5 lakh. This method significantly understates the true cost compared to reducing balance method.
Related Calculators
Related Terms
Effective Interest Rate
True annual cost of borrowing calculated on reducing outstanding balance, also known as EIR or reducing balance rate.
Reducing Balance
Loan interest calculation method where interest is charged only on the outstanding principal amount.
Car Loan
Secured loan for purchasing vehicles where the vehicle serves as collateral for the borrowed amount.
EMI
Equated Monthly Installment - Fixed monthly payment for loans comprising principal and interest.