A percentage is meaningful only with its calculation method. Compare the money received, every payment and all compulsory fees over the same term.
What does a flat rate charge interest on?
A flat-rate illustration charges interest on the original principal for the entire agreed term. Borrow RM10,000 at 4% flat a year for three years: interest is 10,000 × 4% × 3 = RM1,200. Repay RM11,200 over 36 months, or about RM311.11 monthly. The outstanding debt falls, but the flat-interest calculation does not shrink with it. A lender may adjust the final instalment for rounding.
How does a reducing-balance quote differ?
For the comparison below, 4% is a nominal annual reducing-balance rate divided by 12. Each month interest is charged on the remaining balance, then the instalment pays interest and principal. The monthly payment is about RM295.24, giving about RM628.63 total interest. These are two different contracts, not a saving that appears merely by changing the label.
Convert the flat loan into a cashflow rate
For the flat example, solve the monthly rate that discounts all 36 payments back to the RM10,000 received. The monthly rate is about 0.62589%. Multiplying it by 12 gives 7.51065%; compounding it for 12 months gives 7.77467%. Lenders may use a specified annualisation convention when quoting EIR. Ask which definition applies instead of assuming these two annual figures are interchangeable.
Background source: CIMB: Cash Plus Personal Loan — flat and effective rates
| Method | Monthly payment | Total interest |
|---|---|---|
| 4% flat | RM311.11 | RM1,200.00 |
| 4% nominal, reducing balance | RM295.24 | RM628.63 |
Fees can change the rate again
If RM200 is deducted upfront while repayments stay unchanged, only RM9,800 reaches you. The cashflow-based borrowing cost rises even though the advertised flat rate remains 4%. Request the repayment schedule, net amount disbursed, mandatory insurance or takaful costs, settlement charges and any rebates. Compare offers on equal amounts and terms; do not combine optional products into one offer but omit them from another.
Use the calculator with the right input
Numbrite’s personal-loan calculator uses a reducing-balance model with an annual rate divided by 12. Entering a flat 4% there will not reproduce a flat-rate bank schedule. Use it for the reducing-balance example and compare its result with the lender’s actual document. For a flat quote, calculate the fixed interest separately and request the provider’s effective-rate disclosure before making a decision.
Put it into practice
Try RM10,000, three years and 4% to reproduce only the reducing-balance row. This tool does not convert flat rates or include compulsory fees.
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Calculate with these assumptions
Public examples only. Follow the link, then explicitly load the values. Saved personal plans are not changed. Compare assumptions before interpreting the results.
Compare flat and reducing quotes