Why a flat-rate interest quote is not a standard loan repayment rate
Simple interest on the original principal and interest on a declining loan balance describe different models. Establish how the quoted rate is applied before using it to estimate instalments.
Simple interest →Separate the balance assumptions
The simple-interest tool keeps principal unchanged over the stated period. An amortizing loan reduces the interest-bearing balance as principal is repaid. A promotional flat rate applied to the original principal therefore should not automatically be inserted into a declining-balance repayment formula as though the conventions were identical. The same displayed percentage can describe different cash-flow costs.
Calculate a clearly defined flat-rate example
Suppose 12,000 is borrowed for two years at 5% a year calculated on the original principal throughout. Total simple interest is 12,000 × 5% × 2 = 1,200. If the agreement divides the resulting 13,200 into twenty-four equal payments, each is 550. This describes the specific flat-rate charging structure in the example. It is not the result for every loan advertised with a 5% figure.
Compare the complete payment schedule
Ask for net cash received, payment dates, each instalment, fees and the total amount paid. Check the broader cost disclosure required in the relevant jurisdiction. The ordinary loan calculator applies its selected declining-balance convention; it does not automatically convert a flat rate into an effective borrowing rate. Comparing percentages without their definitions can conceal an important cost difference, even when the arithmetic within each model is correct.
Try the calculators
- Simple interest
Calculate interest without compounding.
- Loan calculator
Compare terms and see what borrowing will cost.
- Amortization calculator
See principal, interest and balance for every payment.