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Flat Rate to Effective Rate Calculator

Convert between flat rate (also called add-on interest) and effective rate (reducing balance / APR / EAR). Or back-solve the real rate from your monthly installment. Useful for Indonesian car and motorcycle loans, KTA, credit card installment plans, US subprime auto loans.

Why the flat rate your dealer quoted is not the real rate

Flat rate charges interest on the original principal for the entire term, even though you're paying down the balance every month. A 5% flat over 3 years means you pay 5% × 3 = 15% of principal in interest, regardless of how fast you repay.

Effective rate charges interest only on the remaining balance. Most bank mortgages (KPR), personal loans, and credit card APRs work this way.

For the same monthly instalment, the effective rate is almost always 1.7× to 2× the flat rate. A rough rule: effective ≈ flat × 2n/(n+1) where n is the number of payments. For a 36-month loan that's ≈ 1.95×.

Example: your dealer quotes “bunga 5% p.a. flat” on a Rp 400 juta car loan for 3 years. Monthly instalment: Rp 12.78 juta. Real effective rate: ~9.3% p.a.. Over 3 years you pay Rp 60 juta in interest — but the true rate is almost double what was advertised.

Input

Enter the quoted flat rate. The tool computes the real effective rate and your monthly installment.

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% p.a.

Enter your monthly installment. The tool back-solves both the implied flat rate and the true effective rate.

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Rp

Side-by-side comparison of two loan offers. Any mix of flat or effective. The winner is the lower effective rate.

Offer A

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Offer B

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Currency

Results

Effective Rate (APR, nominal) — The real cost of your loan.
Flat Rate — Per year.
EAR (compounded) — (1+rm)12−1.
Monthly Installment —
Total Interest —
Total to Pay —

Rate comparison

What the dealer shows vs what you really pay.

Amortization schedule (reducing balance, at the effective rate)

This is what your payments really do: each month a portion pays interest, the rest reduces the outstanding balance. Early months are mostly interest.

Principal vs interest per payment

Outstanding balance over time

Full schedule

#PaymentInterestPrincipalBalance

Flat rate vs effective rate — the fundamental difference

Walk into an Indonesian dealership, a Philippines motorcycle shop, or a US subprime auto dealer, and you'll likely be quoted a flat rate. It sounds harmless — “5% per year” — but the math conceals almost double the real cost. Understanding the difference between flat and effective interest is the single most valuable piece of personal-finance literacy for anyone in emerging-market consumer credit.

How flat rate actually works

Flat rate charges interest on the original principal for the full term, regardless of how much you've already repaid. The total interest is fixed up-front:

Total interest = Principal × flat_rate × years
Monthly installment = (Principal + Total interest) / months

Example: Rp 400,000,000 loan, 3 years, 5% flat p.a.

  • Total interest = 400M × 0.05 × 3 = Rp 60,000,000
  • Total to repay = Rp 460,000,000
  • Monthly installment = 460M / 36 = Rp 12,777,778

How effective rate actually works

Effective rate (reducing balance / APR) charges interest only on the outstanding balance. Each month, interest is calculated on what you still owe, then your payment covers that interest plus a bit of principal. Next month the balance is lower, so less interest accrues.

PMT = P × r / (1 − (1+r)^−n)

where r = monthly rate, n = months, PMT = monthly installment

For the same Rp 12,777,778/month on a Rp 400M / 36-month loan, solving for r numerically gives r ≈ 0.7773% per month, or:

  • APR (nominal) = 12 × r ≈ 9.33% p.a.
  • EAR (compounded) = (1 + r)^12 − 1 ≈ 9.74% p.a.

So a 5% flat rate is roughly a 9.3% effective rate — almost 1.87× higher.

The 2× rule of thumb

For typical monthly-paid consumer loans the multiplier is very close to 2:

Effective ≈ Flat × 2n / (n + 1)

where n is the number of payments. For:

  • 12-month loan: multiplier ≈ 1.85×
  • 24-month loan: multiplier ≈ 1.92×
  • 36-month loan: multiplier ≈ 1.95×
  • 60-month loan: multiplier ≈ 1.97×

The approximation is tight because under flat rate you keep paying interest on the original principal even after you've paid most of it back.

APR vs EAR — and why Indonesian banks quote APR

APR (Annual Percentage Rate, nominal) is simply 12 × the monthly rate. EAR (Effective Annual Rate) compounds: (1 + r_m)^12 − 1. For a monthly rate of 0.7773%, APR = 9.33% but EAR = 9.74%.

Indonesian regulation (OJK) requires banks to disclose the suku bunga efektif (effective rate), usually in APR form. The United States Truth in Lending Act (TILA) requires APR disclosure, though some products (credit cards) are quoted in EAR. Always check which form is being quoted before comparing offers.

When is flat rate actually competitive?

  • Short-term, small-ticket loans — a 6-month 2% flat loan has an effective rate of ~6.8%, which may beat formal lenders once fees are included.
  • Promotional zero-percent instalments — legitimate 0% flat instalments (e.g. credit card 3-month, 6-month plans without extra fees) genuinely are 0% effective. Watch for administration fees that sneak back in.
  • Dealer discounts baked into rate — some dealers offer a “higher sticker price, lower flat rate” or vice versa. Compute total cost of ownership, not just the rate.

Red flags

  • “Bunga 0.99% per bulan flat” — that's 11.88% flat p.a., which is ~22% effective over 24 months. Typical KTA or credit card cicilan.
  • Mandatory insurance bundled in — adds 2–5% to principal. Make sure to include this when computing effective rate.
  • Balloon payments or admin fees — ignored by naive rate comparisons. Compute IRR over the full cash-flow stream using the IRR calculator.
  • Early-repayment penalty — under flat rate, repaying early doesn't save you interest (it's all baked in). Check the contract for a rebate clause (rule of 78, actuarial method, or pro-rata).

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