Note:
♦ If your yearly interest rate is 8%, type in 8 not 0.08
♦ Click on "CALCULATE" to see your monthly payment.
♦ Any information you enter will not be saved or recalled in any way by this website.
How was the calculation was done?
Let us call
♦ the principal loan P
♦ the annual interest rate R, and
♦ the total number of years Yr.
Unlike the amortized loan, the interest rate for this loan is applied on the principal loan throughout the payment period. The calculation is a lot simpler, and the interest rate will not fluctuate over time.
To calculate your monthly payment, you will use the following
formula.
Assuming that you get a $10,000 loan, at an annual interest rate of 8% for the length of 5 years, your monthly payment will be calculated in the following manner.
Where P = 10,000; R = 8%; Yr = 5
Take out your calculator folks.
| Step 1 | R ÷ 100 | = 8 ÷ 100 |
| = 0.08 | ||
| Step2 | r × Yr + | = 0.08 × 5 + 1 ….........……(1) |
| = 1.4 | ||
| Step 3 | Yr × 12 | = 5 × 12 …………...........…(2) |
| = 60 | ||
| Step 4 | P × ((1) ÷ (2)) | = $10,000 × (1.4 ÷ 60) |
| = $10,000 × 0.2333 | ||
| = $233.33 |
Flat rates are used by traditional money lenders for the obvious reason that calculation is easy and quick. You only need to divide the original amount of the loan by the number of months, and then apply the monthly rate onto the loan amount. In the case above, $10,000 divided into 60 months equals $166.67. If you add the monthly $66.66 then you will get the monthly total of $233.33.
| $10,000 ÷ (5 × 12) | = $166.67 ………………(3) |
| (0.08 ÷ 12 × $10,000) | = $ 66.66 …………...… (4) |
| (3) + (4) | = $233.33 |
To calculate the cost of the loan, multiply $233.33 by 60 then subtract $10,000 out of the amount.
| $233.33 × 60 | = $13,999.80 …………..(5) |
| (5) − $10,000 | = $ 3,999.80 |
Please note that the final value of $3,999.80 is as is, and does not take the inflation rate into account. The purchasing power of money changes over time, so if you pay $1.00 for a loaf of bread now, and the value of money drops to $0.90 a year later, you will have to pay $1.11 for the exact loaf of bread.
This link will open a new window to another website where you will find comparative tables for different banks in Malaysia. Tables range from savings accounts to hire purchases to home loans as well as base lending rates. You can also read my other article on amortized loan to compare to this method.
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