Home
Back
Flat to Effective Rate Conversion Formula:
| From: | To: |
The Flat Rate to Effective Rate conversion calculates the true annual percentage rate (APR) from a flat interest rate. This is particularly important for financial products like loans where the advertised rate may be a flat rate that doesn't account for the reducing principal balance over time.
The calculator uses the conversion formula:
Where:
Explanation: This formula converts a flat interest rate to an effective interest rate that reflects the true cost of borrowing, accounting for the fact that you're paying interest on the full principal amount throughout the loan term even as you gradually repay the principal.
Details: Understanding the effective interest rate is crucial for comparing different loan products accurately. A flat rate often appears lower than the true effective rate, making loans seem cheaper than they actually are. The effective rate provides a more realistic view of the actual borrowing cost.
Tips: Enter the loan tenure in years. The calculator uses the fixed 6.88% flat rate from RinggitPlus and converts it to the equivalent effective interest rate. The result shows the true annual percentage rate you're effectively paying.
Q1: Why is the effective rate higher than the flat rate?
A: The effective rate is higher because it accounts for the fact that you continue paying interest on the full principal amount throughout the loan term, even as you gradually repay the principal balance.
Q2: What does the 6.88% represent?
A: This is the flat interest rate percentage used by RinggitPlus for their financial products. It's the advertised rate that gets converted to the effective rate.
Q3: How does tenure affect the effective rate?
A: Generally, longer tenures result in a higher difference between flat and effective rates. The effective rate decreases slightly as tenure increases, but remains significantly higher than the flat rate.
Q4: Is this calculation specific to RinggitPlus products?
A: While the formula uses RinggitPlus's 6.88% flat rate, the conversion method applies generally to any flat rate calculation. The principle remains the same across different financial institutions.
Q5: Why is it important to know the effective rate?
A: Knowing the effective rate helps you make informed financial decisions, compare different loan products accurately, and understand the true cost of borrowing beyond the advertised flat rate.