Tools / Everyday
Personal loan: flat or reducing?
The bank says “only 3.5%” and it's a flat rate? Enter the amount, term and rate to see the monthly instalment, what you pay on top of the loan, and the reducing rate it really equals. Compare two offers side by side.
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How to use it
- Enter the loan amount and the term in months.
- Enter the yearly rate and pick its type: flat or reducing. Add the processing fee if any.
- See the instalment, total interest and the equivalent rate. Add a second offer to compare.
Questions
What's the difference between flat and reducing?
A flat rate is charged on the whole loan for the whole term, even after you've paid part of it back. A reducing rate is charged only on what you still owe, so it shrinks every month. That's why the same number costs you roughly twice as much flat.
How is the equivalent rate worked out?
We take the flat offer's monthly instalment and find the reducing rate that gives the same instalment over the same term. That's the rate to compare offers fairly.
Does the processing fee matter?
Yes. The fee comes out of your pocket on day one, so we add it to the cost and work out the effective rate with it.
Are these numbers final?
It's an estimate with a fixed monthly instalment. Banks may add life insurance or other fees, so ask for the repayment schedule before you sign.