Flat Rate to Effective Interest Rate (EIR) Calculator
Turn a flat (add-on) rate on a car or personal loan into the effective interest rate (EIR) you can compare with reducing-balance loans.
How to convert a flat rate to EIR: total interest = loan × flat rate × months ÷ 12, and instalment = (loan + interest) ÷ months. The EIR is the reducing-balance rate that gives the same instalment, solved from P = M × (1 − (1 + i)−n) ÷ i, with EIR = 12 × i.
Example: a $20,000 loan at a 5.00% flat rate over 60 months costs $416.67 a month and $5,000 of interest, an EIR of 9.15%.
Malaysian car loan? Use the car loan calculator for Malaysia. For reducing-balance loans, use the loan calculator.
2026 update: under the Hire-Purchase (Amendment) Act 2026, effective 1 June 2026, fixed-rate hire purchase moves from flat rates and the Rule of 78 to the reducing balance method priced in EIR. Providers have until 31 March 2027 to switch, so flat-rate quotes may still appear until then. Banks say eligible older Rule of 78 agreements get goodwill discounts on early settlement (ABM; BNM consumer guide, checked 19 October 2026). This calculator converts any flat quote to its EIR so you can compare. See flat rate vs EIR in Malaysia.
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Use your actual figures where available. The output is an educational estimate based on the assumptions below.
Displayed amounts are rounded to two decimal places. Keep the same currency and time period across related inputs.
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How this calculator works
A flat rate charges interest on the original loan amount for the whole tenure, even though you repay part of the principal every month. Singapore's MoneySense explains that this is why the effective interest rate (EIR) on a flat-rate loan is higher than the advertised rate. The calculator works out the flat-rate instalment, then finds the reducing-balance annual rate that gives exactly the same instalment on the same loan.
Flat rate to EIR formula
Instalment M = (P + total interest) ÷ months
Solve P = M × (1 − (1 + i)−n) ÷ i for the monthly rate i; EIR = 12 × i
There is no neat closed-form answer for i, so the calculator solves it numerically. A common shortcut, flat × 2n ÷ (n + 1), is shown in the explanation box. It always comes out slightly high.
Worked examples: flat rate vs EIR
| Loan | Flat rate | Tenure | Instalment | Total interest | EIR |
|---|---|---|---|---|---|
| $20,000 personal loan | 5.00% | 60 months | $416.67 | $5,000.00 | 9.15% |
| $30,000 car loan | 2.78% | 84 months | $426.64 | $5,838.00 | 5.19% |
| $100,000 term loan | 5.00% | 12 months | $8,750.00 | $5,000.00 | 9.10% |
In the first row, the shortcut gives 5 × 120 ÷ 61 ≈ 9.84%, against the exact 9.15%. "Double the flat rate" is only a rough check.
Common mistakes
- Comparing a flat rate from one lender with an EIR or APR from another.
- Typing a flat rate into a reducing-balance loan calculator. Convert it here first, then use the EIR.
- Forgetting processing fees. They raise the true cost further, and this calculator does not include them.
- Assuming a longer tenure keeps the EIR the same. The gap between flat rate and EIR changes with tenure.
Sources
- MoneySense (Singapore) – Costs of borrowing: flat rate, monthly rest and EIR
- CFPB – Difference between a loan's interest rate and its APR
Malaysia and Singapore notes
Flat rates are common on Malaysian car hire-purchase and some personal loans. For a car loan with an RM currency preset and local notes, use the car loan calculator for Malaysia. In Singapore, personal loan offers usually show the EIR next to the advertised flat rate, so you can check it against this result.
Related calculators
- Loan calculator — payment on a reducing-balance loan
- Car loan calculator — payment including down payment
- Amortization schedule — month-by-month interest and principal
Related education
- Flat Rate vs Effective Interest Rate in Malaysia — new guide with worked examples.
- APR vs interest rate — flat, EIR and APR explained
- How loan interest works
- How car loan interest adds up
Frequently asked questions
Is EIR the same as APR?
They are closely related. Both express the cost on a comparable annual basis, but APR usually also includes certain fees. This calculator gives the EIR from the rate alone.
Why is the EIR roughly double the flat rate?
Under a flat rate you pay interest on the full original amount even though, on average, you owe only about half of it over the tenure. The exact multiple depends on the number of instalments.
Can I convert an EIR back to a flat rate?
Yes. Work out the instalment from the EIR using the loan calculator, then total interest ÷ principal ÷ years gives the flat rate.
Does it include fees?
No. Add-on fees, insurance and early-settlement rules can raise the true cost. Check the lender's disclosure.
Is EIR always about double the flat rate?
No. "Double the flat rate" is only a rough check. A 5% flat rate over 60 months is a 9.15% EIR, while the shortcut formula flat × 2n ÷ (n + 1) gives about 9.84%.
Why should I compare loans using EIR instead of the flat rate?
The flat rate ignores that you repay the balance over time. EIR measures interest on the reducing balance, so loans with different tenures can be compared fairly.
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