Two loans can both say "6%" and cost completely different amounts. Here's how the two ways of charging interest work — and how to compare them fairly.
What a flat rate is
With a flat rate, interest is calculated on your original loan amount for the entire tenure — even as you pay the loan down. Borrow RM 10,000 at 6% flat for 2 years and the interest is simply RM 10,000 × 6% × 2 = RM 1,200, no matter how much you have already repaid.
Flat rates look small on paper, which is exactly why they are popular in advertising. The number understates what the money actually costs you.
What reducing balance means
With a reducing (or diminishing) balance, interest is charged each month only on what you still owe. As your balance falls, the interest portion of every instalment shrinks and the principal portion grows.
Example: RM 10,000 at 12% p.a. on reducing balance over 24 months costs about RM 470.73 a month — roughly RM 1,298 in total interest. In the first month you pay about RM 100 in interest; by the final month it is only a few ringgit.
The same loan, side by side
Here is the same RM 10,000 over 24 months under both methods. Notice how a "6%" flat loan and a "12%" reducing loan are almost the same real cost:
| RM 10,000 · 24 months | 6% flat | 12% p.a. reducing |
|---|---|---|
| Monthly instalment | RM 466.67 | RM 470.73 |
| Total interest | RM 1,200.00 | RM 1,297.52 |
| True yearly cost | ≈ 11–12% p.a. | 12% p.a. |
| Early settlement saves interest? | Usually little or nothing | Always |
What to check before you sign
Ask these three questions and you will never be caught out:
- Is the quoted rate flat or on reducing balance?
- What is the total repayment amount over the full tenure?
- Can I see the full repayment schedule, month by month?
How Amandana Kredit charges interest
We quote all rates on reducing balance, from 12% p.a., and our calculator shows the full schedule before you apply. Settling early always reduces the interest you pay — with no early settlement penalty.