It would be good if before taking out a loan we could know how to calculate loan interest so that we can check the correctness of the interest rate set by the bank or non-bank financial institution, apart from that we can also analyze how much interest and monthly installments we have to pay and in what time period. The loan can be repaid, so you can manage your finances better and make future-oriented plans.
Each bank in various countries will apply different types of loan interest rates to their customers, but there are often similarities in how they are calculated. The following are the types of loan interest rates that are often applied by banks, such as:
1. Flat Interest
Flat interest or what we know as simple interest is one of the easiest types of interest, in general the flat interest type is often applied to loans without collateral. The amount of flat interest will be determined according to the initial loan, while monthly installment payments will be divided by the term or tenor.
2. Effective Interest
Effective interest or amortized interest is often applied to long-term loans such as mortgages, car and motorbike loans. The installment amount will be smaller every month. The amount of interest that must be paid each month will decrease because the principal balance of the loan becomes smaller.
3. Annuity Interest
Annuity interest applies the same installments every month but the interest will get smaller while the loan installments will get bigger.
Each bank in various countries will apply different types of loan interest rates to their customers, but there are often similarities in how they are calculated. The following are the types of loan interest rates that are often applied by banks, such as:
1. Flat Interest
Flat interest or what we know as simple interest is one of the easiest types of interest, in general the flat interest type is often applied to loans without collateral. The amount of flat interest will be determined according to the initial loan, while monthly installment payments will be divided by the term or tenor.
2. Effective Interest
Effective interest or amortized interest is often applied to long-term loans such as mortgages, car and motorbike loans. The installment amount will be smaller every month. The amount of interest that must be paid each month will decrease because the principal balance of the loan becomes smaller.
3. Annuity Interest
Annuity interest applies the same installments every month but the interest will get smaller while the loan installments will get bigger.
