Answer first

A flat percentage is charged against original principal, while a reducing-balance rate is charged against the remaining balance. The percentages are not interchangeable.

How to decide

For a flat-rate illustration, calculate principal × rate × years, then divide total repayment into instalments. An effective annual rate requires the timing of every cash flow and an iterative calculation.

A practical process

Use the same amount received, dates and fees. Compare total ringgit cost and compute an internal rate of return only with a reviewed tool.

Limits and next step

Rounding and fees affect the effective-rate calculation. Check the linked primary source and its captured date before making a commitment.

Malaysian worked example

Show the working

Inputs

  • RM20,000
  • 5% flat
  • 5 years

Calculation

  1. flat interest = RM5,000
  2. monthly = RM25,000 ÷ 60 = RM416.67

Reviewed resultThe quoted 5% flat rate produces RM5,000 interest; it is not equivalent to 5% on a reducing balance.

Rounding and fees affect the effective-rate calculation.

Verify

Sources and update record