Everything You Should Know About Flat Interest Rate to Avail Personal Loan
A personal loan is offered either on a flat rate of interest or a reduced rate. When a reduced rate of interest is applied, charges are calculated not on the gross sum, but the outstanding loan balance, after each EMI is paid.
On the other hand, a flat interest rate is calculated on the total loan amount rather than the outstanding amount. That is, interest is accrued on the principal sum, which was borrowed in the first place. Unlike reduced rates, once the repayment tenure begins, the interest calculated remains constant throughout the term. Consequently, the interest outgo is higher in the case of a flat interest rate compared to that of reduced rates.
Borrowers should also keep in mind that the interest calculation method applied by the lending institution influences the monthly instalment amount that he or she has to pay. Therefore, they should understand the interest calculation mechanism before applying for a personal loan.
How does the flat interest rate work?
The formula used by lending institutions for flat interest calculation method is as follows –
Interest to be paid in each instalment = (Initial loan amount X interest rate applicable per year X total number of years)/ total number of loan instalments
Following is an example to help understand this calculation better –
An individual D availed a personal loan of Rs.6,00,000 on 6th October 2020 for a tenure of 36 months and at an interest of 10%. If repayment is calculated at a flat interest rate calculation method, then D will have to pay Rs.5000 as interest and Rs.16,666.67 as principal throughout the repayment period. The total interest accrued will stand at Rs.1,80,000 at the end of the loan tenure.
Are flat interest rates on personal loans beneficial?
If you opt for a flat rate of interest on your personal loan, you must realise your EMI and interest payable will remain the same as long as the entire loan is not paid off. This will be helpful when it comes to planning the EMI payments for the whole loan tenure beforehand. Hence, a flat rate of interest on a quick personal loan can be ideal if your monthly expenses are not going to increase in the near future.
Personal Loan EMI calculator
To understand how a flat interest rate calculation can affect one’s monthly instalment amount, borrower’s can use online tools like personal loan EMI calculators offered by financial institutions and NBFCs like Bajaj Finserv on their official website.
With the help of this calculator, borrowers can choose the right personal loan lender by comparing different interest rates and service terms. They can compute the final values by entering these following details in a calculator –
- Loan amount
- Tenure of their choice
- Current personal loan interest rates
Based on these values, a calculator will not only compute a borrower’s monthly instalment amount but also interest payable and total amount due. Individuals can therefore find the right personal loan for them by using a loan EMI calculator.
Besides Personal Loan EMI calculator, these NBFCs also provide pre-approved offers which can be availed on an array of financial products like personal loans, business loans, credit cards etc. Such offers aid in accelerating the application procedure by reducing unnecessary hassles. Borrowers can check their pre-approved offer by entering nominal information like their name and contact information.
One should, thus, assess the affordability of a loan as per his/her convenience and financial standing with regards to the interest accrual method adopted by a lending institution. If you have already decided on an interest rate, then make sure to check out the necessary documents required for personal loan and eligibility criteria to avoid delay in fund-disbursal.