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Flat Rate vs Effective Rate Personal Loan Malaysia
Flat-rate advertising can make borrowing look cheaper because the quoted percentage is applied to the original principal rather than the declining balance. Effective rate is the better basis for comparing true annual borrowing cost.
Why flat rate misleads
- The same quoted percentage can produce a materially higher effective borrowing cost.
- Do not compare a flat rate directly with an effective rate as if they were the same measure.
Comparison method
- Use the same principal and tenure.
- Calculate total repayment.
- Convert to effective annual cost or use the bank's disclosed effective rate.
Decision rule
- Rank loans by effective cost and total repayment, then consider fees and settlement terms.
Comparison worksheet
| Input | Option A | Option B |
|---|---|---|
| Same principal / purchase price | Enter actual | Enter actual |
| Same comparison horizon | Enter actual | Enter actual |
| Total cash out | Calculate | Calculate |
| Recurring / financing cost | Calculate | Calculate |
| Exit / settlement risk | Verify | Verify |
The worksheet forces both options onto the same assumptions. Changing tenure, deposit or usage between columns creates a fake comparison.
When this page deserves to be indexed
This page compares genuinely different financial structures or decision paths. It does not depend on swapping a bank name into a generic template, and it remains useful even if the calculator CTA is removed.