Flat Interest Rate
Calculated on the original principal throughout the loan term, common in UAE.
Detailed Description
Flat Interest Rate
What is a flat interest rate?
A flat interest rate is a method of calculating interest on a loan where the rate remains constant throughout the loan term, based on the original principal amount.
How is total interest calculated with a flat interest rate?
Total interest is calculated on the initial loan amount for the entire duration of the loan, regardless of the outstanding balance.
What are the advantages of a flat interest rate?
Advantages include simplicity in payment calculations, predictable monthly payments, and potentially lower rates in certain lending scenarios.
What are the disadvantages of a flat interest rate?
Disadvantages include potentially higher overall costs compared to reducing balance methods and no reduction in interest burden from early or extra payments.
How does a flat interest rate compare to a variable interest rate?
Flat rates provide stability with fixed payments, while variable rates fluctuate based on market conditions and can lead to higher payments over time.