Flat rate of interest

Nature

In a flat rate interest calculation, the principal amount remains constant throughout the life of the personal loan for the purpose of interest calculation.

Basic amount

The amount for which the loan is sanctioned becomes the base on which you have to apply the flat rate of interest for the entire duration of the loan. So for example, a loan of Rs 1.5 lakh taken for 3 years at 15% interest rate will have a total interest cost of Rs 67,500 over the 3-year life.

Repayment

Even though the base rate for interest calculation is the full amount of loan you will still have to repay the loan in instalments every month like most other loans.

No impact

The disadvantage of this method is that all the repayments of the loan do not allow you the benefit of reducing the base for the interest calculation. Due to this reason, you keep paying interest on a higher base or the principal.

Easy calculation

The main advantage of this method is that it is easy to calculate your interest cost given the loan period and the rate of interest that is available with you.