By MoneyBees
Convert a flat interest rate to the effective interest rate (EIR) and back. See the monthly instalment, the total interest, what a processing fee adds and why the EIR is close to double the flat rate.
Taken off the cash you receive. A quoted EIR already includes it.
Effective interest rate
6.80%
1.94 times the flat rate
Monthly instalment
$920.83
36 instalments
Total interest
$3,150.00
$33,150.00 repaid in all
A flat rate charges interest on the full $30,000 for all 3 years, even though you pay some of it back every month. On average you owe about half the loan, so the real rate on what you owe works out to 6.80%.
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Your instalments split into interest on the balance you still owe and repayment, at the EIR.
| Year | Paid | Interest | Principal | Still owed |
|---|---|---|---|---|
| Year 1 | $11,050.00 | $1,700.48 | $9,349.52 | $20,650.48 |
| Year 2 | $11,050.00 | $1,064.42 | $9,985.58 | $10,664.91 |
| Year 3 | $11,050.00 | $385.09 | $10,664.91 | $0.00 |
The flat-rate view puts the same interest in every month. The true split is heavier at the start.
| Tenure | EIR | Times the flat rate |
|---|---|---|
| 1 year | 6.59% | 1.88 |
| 2 years | 6.78% | 1.94 |
| 3 years | 6.80% | 1.94 |
| 4 years | 6.78% | 1.94 |
| 5 years | 6.74% | 1.92 |
| 6 years | 6.69% | 1.91 |
| 7 years | 6.64% | 1.90 |
The gap grows with the tenure because you hold the money longer while paying interest on all of it.
MoneySense's example: borrow S$1,000 and repay S$1,200 a year later as 12 instalments of S$100. The S$200 interest is a 20% flat rate. Because you pay back part of the S$1,000 every month, the EIR is 41.3%.
Its car loan example: S$90,000 at 2.5% flat costs S$1,687.50 a month over 5 years, with S$11,250 interest. Over 7 years the instalment falls to S$1,258.93 but the interest rises to S$15,750.
A flat rate is used for car loans and personal loans. A monthly rest rate charges interest only on what you still owe, as home loans do, so it is already close to the EIR. Compare loans on the EIR, which counts the fees and the way interest is charged.
Figures checked 3 Oct 2026.
A flat rate charges interest on the original loan for the whole tenure. The effective interest rate (EIR) charges it only on what you still owe, so it shows what the loan really costs.
You repay part of the loan every month, so on average you owe about half of it. Paying interest on the full amount while owing half works out to close to twice the rate.
Find the monthly rate at which your instalments repay the cash you received, then compound it over 12 months. The calculator does this for you, the same way as MoneySense's examples.
Yes. The same flat rate gives a higher EIR over a longer tenure, because you keep paying interest on money you have already repaid for longer.
The fee comes off the cash you receive, but you still repay the full loan. That raises the EIR, more so on short loans.
MoneySense says flat rates are common for car loans and personal term loans. Home loans usually charge interest on monthly rest.
Usually, since the EIR counts the rate and the fees. MoneySense notes one exception: if you plan to repay early, a loan without an early repayment fee can cost less even with a higher EIR.
Yes. For the same interest, smaller and more frequent repayments give a higher EIR. MoneySense's S$1,000 example goes from 20% with one repayment to 41.3% with twelve.
These calculators provide general estimates for educational purposes only and are not personalised financial advice. Results may rely on rates and rules that change over time, so verify against official sources (IRAS, CPF Board, HDB, MAS) or consult a licensed financial adviser before making decisions.
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