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The Difference in Interest Rates Flat and the Effective as well As the Simulation Calculations!

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The Difference in Interest Rates Flat and the Effective as well As the Simulation Calculations!

Westrive – Term interest rates would be familiar for many people, especially when they make financial transactions. Simply put, you earn interest while saving money in the bank and will be charged interest when performing loans in financial institutions.

What does the interest rate it?

The interest rate is the percentage obtained from the compensation for lending money. The calculation of the interest rate is also calculated in the annual which is then divided into per month. In addition, the amount of the interest rate is also determined by Bank Indonesia and its nature was not sure.

Generally, interest rates are influenced by several factors such as inflation, the economic development of a country and so forth. So the only reasonable if the value of interest rates often experience up and down.

The type of interest rates

The Difference in Interest Rates Flat and the Effective
The Difference in Interest Rates Flat and the Effective

There are several types of interest rates that apply in Indonesia, namely the interest rate on deposits and the interest on the loan.

  • Deposit interest is the percentage of the fees received by the customer while saving money in the bank, such as interest on savings deposits and also deposits.
  • The interest on the loan is the cost that must be paid by the customer when performing loans to financial institutions, such as interest rates credit card, personal LOAN and other.
    However, the interest rate on the loan is divided into several categories: the flat rate and effective interest. The second method of calculating the interest rate, the course will greatly affect the financial you.

[2 Ways of Calculating Interest and Loan Installments WestRive Institutions]

Therefore, you need to understand more deeply about the flat rate and the effective interest complete with simulation calculations which will be discussed below:

What is the flat rate and the effective interest?

Although already familiar with interest rates, in fact there are still many customers who have yet to understand well about the flat rate and effective interest. Whereas the calculation of the flat rate of 5 percent, with effective interest rate of 5 percent is certainly different.

Therefore, when you do a loan application, make sure you already know about the calculation of the flowers so as not to feel aggrieved. Then, what is it flat rate and effective interest? Yuk, simak here.

Flat rate

Flat rate or a fixed interest rate is a calculation of the interest amount based or refers to the principal of the debt early. The flat rate is also generally used for short-term loans such as Credit Without Collateral (KTA) and Credit Ownership of the Motor Vehicle (KKKB).

In simple terms, the flat rate calculated from the initial amount of the loan principal, which is then distributed proportionally or divided based on the number of the tenor of the credit.

Not a few debtors who choose flat rate because the calculation is easy and very simple. Even the customer can determine how the amount of installments to be paid from the beginning to the end.

By doing so, the debtor can prepare a certain amount of money with the same nominal each month to pay the mortgage loan.

However, the longer the tenor of the loan you take, the greater the total money paid by you until the installment ends.

Effective interest

Effective interest is the calculation of interest rates refers to the remainder of the debt of the debtor. By doing so, the amount of money that you deposited every month would be different. But that differ only in the amount of deposit the interest rate alone yes while the magnitude of the installment remains the same.

So, the value of the interest to be debtors to pay each month will be smaller or decreased from time to time because the calculation is adjusted with the remainder of the debt that you have.

The principle of the effective interest that is fundamental installment per month remains the same but the interest per month is calculated from the rest of the installments that have not been paid and will go down along with the rest of the loan tenor.

Different from the flat rate, the effective interest is generally used for this type of long-term loans with a nominal loan is large enough. For example, Home Ownership Credit (KPR).

Simulation calculation of flat rates and effective

To be able to understand more about the flat rate and the effective interest, the following simulation calculation between the two interest rates.

Floral flats
The following formula is the flat rate that you can make reference to determine the installment installment money must you pay each month when you want to apply for a loan.

Formula flat rate:

The installment of principal each month: the Principal of the loan / payment term (loan tenor).
Installment of interest each month: the Percentage of flowers x credit limit.
Total installment per month: Installment of principal + installment of interest.
Example case:

Andi apply for a loan of rp 120 million with interest of 2 percent per month. Andi choose the tenor for 24 months. How much is the amount of money that must be Andi paid every month with calculation of the flat rate?

So,

The amount of the loan = Rp120.000.000

Interest = 2 per cent per month

Period = 24 months

Calculation:

The installment of principal per month = Rp120.000.000 / 24 months = Rp5.000.000.
Installment interest per month = 2% x Rp.120.000.000 = Rp2.400.000.
Total installment per month = Rp5.000.000 + Rp2.400.000 = Rp7.400.000.
From the above calculations, then Andi have to pay installments per month amounting to Rp7.400.000 for 24 months until the debt is paid off.

Effective interest

Not a few of the debtor sufficient difficulty to determine the nominal installments to be paid per month if you choose effective interest. This is because, the interest that you deposit each month will decrease along with the remainder of the loan. To more easily understood, the following simulation calculations:

The formula of the effective interest:

The installment of principal per month: loan Principal / payment term (loan tenor).
Installment interest per month: ending Balance x interest rate per year / 12
Total installment per month: Installment of principal + installment of interest.
Example case:

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Sandra apply for a loan for Rp240.000.000 over a period of 48 months and imposed effective rate of 12 percent per year. How much is the amount of money that must be Sandra pay each month?

So:

The amount of the loan = Rp240.000.000

Interest = 12% per year

Period = 48 months

The installment of principal per month = Rp240.000.000 / 48 months = Rp5.000.000.

Installment month-to-1:

Installment interest month-to-1 = Rp240.000.000 x 12% / 12 = Rp2.400.000.

Total installments to be paid Sandra = Installment of principal + interest per month (Rp5.000.000 + Rp2.400.000 = Rp7.400.000).

Then, the rest of the debt that belongs to Sandra for Rp240.000.000 – Rp7.400.000 = Rp232.600.000.

The installment of the 2nd month:

Installment interest month-to-2 = Rp232.500.000 x 12% / 12 = Rp2.326.000.

Total installments to be paid Sandra in the 2nd month = Installment of principal + interest per month (Rp5.000.000 + Rp2.326.000 = Rp7.326.000).

Then, the rest of the debt is owned by Sandra by Rp232.600.000 – Rp7.326.000 = Rp225.274.000.

Selective in choosing the calculation of interest

The flat rate and the effective interest indeed become the perfect way of calculation installment when you want to apply for a loan in a financial institution. However, you should choose a method of selectively so as not to incriminate you later in the day.

In addition, it is recommended that you use the loan funds to something useful so that it can sustain the future and life you, as one of them is for the cost of education.

[Take advantage of the Installment Program from the WestRive to the Cost of Children’s Education!]

But now you don’t need to worry again search for the institution or agency to finance the education of you and the baby. Through WestRive, all the problems of the cost of education will be resolved easily and quickly.

Finance Learner Hello, I'm Writer at Westrive. Learn How to Become a Self-Taught Finance Expert. Let's Enjoy finance like never before.

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