Capital Credit Bridge

Flat Rate vs Reducing Balance: How Loan Interest Really Works

A flat rate charges interest on the original principal for the entire tenure, while a reducing balance rate charges interest only on what you still owe.

A 12% flat rate over 3 years costs roughly the same as a 21-22% reducing balance rate. Neither is wrong — but you must compare like with like.

Always ask your lender which method applies, and request the total repayment amount in writing before committing.