What is a flat interest rate?

Flat interest rate is any interest rate that does not change over time. This term is often used to describe certain loans that do not take into account the average approach of the recipient to credit money over time. These loans are commonly used in microfinance, especially when lending to those in developing countries. Although there are some advantages for using flat interest rate calculations, such as easy and increased flexibility of payments, there are also disadvantages, as the rate of interest due is not reduced because the loan is repaid as conventional loans. This amount then extends evenly for the time of the loan. For example, a $ 10,000 loan in USD (USD) with a 5% interest rate would require $ 500 interest to be paid. If the loan repayment period was over the SPZA 10 months would pay the recipient $ 1,000 per month and $ 50 per month in interest. These loans also have the potential to be paid at the end of the credit period and in this case the recipient of the loan would pay $ 50 per month and $ 10,000 perthe end of the period.

2 For this reason, some people feel that flat interest rate loans are deceptive or unfair, because the credit recipients will end by paying more interest if all other factors are maintained constant. Another disadvantage of flat interest rates is that they do not support the recipient to pay off the loan early to avoid paying special interest. As a result, people are more often waiting to repay the loan in full, sometimes high -cost for the opportunity in the process.

These disadvantages are over several advantages, including easy calculation and a more flexible payment plan. Since flat interest rates can be calculated simply and efficiently, no continuous monthly conversion is required, saving time to creditors and reducing the potential for error. Many farmers can benefit from this system because they have flexibility in repayment of their loan on KONEC credit period after harvesting crops. Overall, the total interest payable for flat interest rates is no different from traditional loans, because all creditors will modify their marketing strategies, interest rates and credit periods to maximize profits.