Flat interest rate
Interest charged on the full original loan for the whole tenure, even as you repay, so it costs more than it sounds.
A flat interest rate charges interest on the full original loan amount for the entire tenure, not on what you still owe. It looks cheaper than it is. Always ask whether a quoted rate is flat or reducing; see the comparison in how an EMI works.
Questions people ask
What is a flat interest rate?
A flat rate charges interest on the full amount you borrowed, for the whole loan, even though you repay part of it every month. So you keep paying interest on money you've already returned.
How do I compare a flat rate with a reducing rate?
Ask the lender for the annual percentage rate, or APR, in the Key Facts Statement, which shows the true yearly cost on a comparable basis. As a rough guide from our illustration, a 12% flat rate over 3 years costs about as much as a 21% reducing balance rate.
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