Financial Quotient

What is a flat-rate loan?

A flat-rate loan can be repaid monthly, quarterly, annually or at any pre-specified frequency.
A flat-rate loan can be repaid monthly, quarterly, annually or at any pre-specified frequency.PHOTO: REUTERS

A flat-rate loan is a type of fixed interest rate loan which computes interest on the original loan amount for the full duration of the loan. A flat-rate loan can be repaid monthly, quarterly, annually or at any pre-specified frequency.

For example, if you borrow $50,000 for five years with monthly instalments, and if the applied rate is 3 per cent a year on a flat-rate basis, you will need to pay total interest of 3 per cent × 5 × $50,000 = $7,500 over the five-year period.

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A version of this article appeared in the print edition of The Sunday Times on December 30, 2018, with the headline 'What is a flat-rate loan?'. Print Edition | Subscribe