Flat rate vs reducing balance
- Reducing balance (APR): interest is charged only on what you still owe, so it shrinks every month.
- Flat rate: interest is charged on the original amount for the entire term. A 3% flat rate over 5 years costs about the same as 5.6% APR.
Frequently asked questions
How is the monthly payment calculated?
Payment = P × r ÷ (1 − (1 + r)^−n), where r is the monthly rate and n the number of months.