Take a closer look at the “monthly flat rate”

The interest on personal instalment loans is often calculated in terms of a “monthly flat rate”. For example, a HK$50,000 loan to be repaid in 12 months at a monthly flat rate of 0.7% would mean paying interest of HK$350 every month ($50,000 x 0.7%). The annual interest is HK$4,200 ($350 x 12).

Since the monthly flat rate is usually less than one percent, some people may believe that “flat rate” is very low. Others may mistakenly think that monthly flat rate times 12 is equal to the annual rate. All these perceptions are wrong. Converting the above monthly flat rate example (0.7%) into the annualised rate gives a rate of 16.26%. A monthly flat rate of less than one percent may not be cheap at all!

Annualised Percentage Rate is what you should really look at. An APR is a reference rate which includes the basic interest rate and other fees and charges of a loan product expressed as an annualised rate. It helps consumers compare the borrowing costs of different loan products.

Before taking out a loan, use the IFEC Borrowing and Debt Calculator to work out the monthly repayment amount and cost of borrowing to see if you can afford to repay. .