Why a flat rate is not what it looks like
A flat rate charges interest on the original loan amount for the whole term — even though you are handing the money back month by month. Halfway through the loan you owe roughly half the amount, but you are still being charged as if you owed all of it. A reducing-balance rate — how banks, mortgages and any honest comparison work — charges interest only on what you still owe.
The result: a flat rate of a given number costs roughly as much as a reducing-balance rate of nearly twice that number. The exact multiple depends on the term, which is what this converter computes precisely.
| Quoted flat rate | Term | True reducing-balance equivalent |
|---|---|---|
| 10% flat | 1 year | ≈ 17.97% per year |
| 15% flat | 3 years | ≈ 25.98% per year |
| 20% flat | 2 years | ≈ 35.6% per year |
These are not edge cases or tricks of rounding — they are what the arithmetic of a falling balance does to a rate charged on a fixed one.
Where flat rates show up
Flat quoting is common in personal loans, vehicle finance, microloans and hire purchase across many African markets — precisely the products where borrowers compare least. A lender quoting "15% flat" next to a bank quoting "22% reducing" looks cheaper while being more expensive. The only fair comparisons are the equivalent reducing-balance rate this tool produces, or better still the total amount repaid — a number that survives every style of quoting.
Questions to ask any lender
- "Is that rate flat or reducing balance?" If the answer is vague, assume flat and convert it here.
- "What is the total amount I will repay?" — in writing, including all fees. Our loan agreement guide covers the other clauses worth two minutes of your time.
- "What fees and insurance are added?" Neither a flat nor a reducing quote includes initiation fees, monthly service fees or credit life insurance — they raise the real cost above anything this page shows.
This tool runs entirely in your browser — nothing you type is sent to us or stored. Results are estimates for education, not financial advice. More tools: see the full list.