Flat Rate to Real Interest Rate Calculator

How a flat rate becomes a real rate

A flat rate charges interest on the original loan for the whole term. NGO, microfinance, and some car and consumer loans are often quoted this way, with weekly or monthly instalments.

• Total flat interest = loan × flat rate × years, where years = months ÷ 12.
• Instalment = (loan + total interest) ÷ number of instalments.
• Real rate: the rate i per instalment at which the instalments are worth exactly the money you received, received = instalment × (1 − (1 + i)^−N) ÷ i. There is no closed-form answer for i, so the calculator solves it by bisection.
• Real yearly rate = i × instalments a year (12 monthly, 52 weekly). The effective yearly rate is (1 + i)^{instalments a year} − 1.

Money received is the loan minus any upfront fee. The interest and instalment still use the full loan.

Example: ৳1,00,000 at 12% flat, monthly

1. Interest = 1,00,000 × 12% × 1 year = ৳12,000.
2. Instalment = (1,00,000 + 12,000) ÷ 12 = ৳9,333.33.
3. The rate per month that makes 12 instalments of ৳9,333.33 worth ৳1,00,000 is about 1.788%, so the real yearly rate is 1.788% × 12 = 21.46%. With monthly compounding the effective yearly rate is 23.70%.

Example: ৳50,000 at 15% flat, weekly

Weekly means 52 instalments a year, so 12 months is 52 instalments. Interest = 50,000 × 15% = ৳7,500 and the instalment is (50,000 + 7,500) ÷ 52 = ৳1,105.77. The weekly rate that matches is about 0.541%, so the real yearly rate is 0.541% × 52 = 28.14%, nearly double the quoted 15%.

More examples side by side

Why a flat rate understates the cost

Each instalment repays part of the loan, so what you owe shrinks. A flat rate ignores that and keeps charging on the full amount. In the ৳1,00,000 example you pay ৳12,000 of interest, yet on average you hold only about ৳54,167 of the loan. For a monthly loan repaid over a year at 5% to 30% flat, the real rate is about 1.7 to 1.8 times the flat rate. An upfront fee pushes it higher still, because you receive less than you repay.

For how flat and reducing-balance loans compare, and how an EMI is worked out, read How an EMI is calculated. For a loan quoted on the reducing balance, use the EMI Calculator, and for plain simple or compound interest the Interest Calculator.

Assumptions

• Instalments are equal and paid at the end of each month or week; the first falls one period after you receive the money.
• Weekly means 52 instalments a year, so the count is months × 52 ÷ 12, rounded. Your lender may count weeks differently.
• Late fees, insurance charged per instalment, grace periods and part-payments are not included.
• This page does not state any legal limit on rates. Ask your lender for its written schedule and compare the real rate with it.

How to use the calculator

1. Enter the loan amount. Bangla digits and 1,00,000-style grouping both work.
2. Enter the flat interest rate a year, for example 12.
3. Enter the loan term in whole months.
4. Choose Monthly or Weekly instalments.
5. Enter any upfront fee taken out of the loan, or leave it blank.
6. Select Find the real rate to see the instalment, total repayment and the real yearly rate.