Effective Interest Rate Calculator Singapore: Flat Rate vs EIR (2026)
By Lucas Seah, Founder of Excellence Singapore Group | Last Updated: October 2026
The effective interest rate (EIR) is what a loan really costs you each year once two things are counted: the fact that you repay the balance month by month, and any fees taken at the start. A flat rate ignores both. It charges interest on the full original amount for the whole term, so the true rate is far higher than the headline. A 5% flat rate over five years works out to an EIR of about 9.55%, or 9.15% a year if the same loan were quoted on a reducing balance.
Use the calculator below to convert any flat-rate quote into its effective rate before you sign.
Key Takeaways
- A flat rate charges interest on the original loan amount for the whole tenure, even as you repay it, so it understates the real cost.
- At typical business rates and terms, the EIR is about 1.82 to 1.96 times the flat rate: close to double, but not a fixed ratio, so use the calculator rather than a rule of thumb.
- Upfront fees push the effective rate up most on short loans: a 1% fee adds about 2.1 points to the EIR of a one-year loan but under half a point to a five-year one.
- To compare a flat-rate quote with a loan priced on a reducing balance (monthly rest), compare the calculator’s reducing-balance rate, not the flat rate.
- Do not count on being shown an EIR. The Hire-Purchase Act’s disclosure rules cover consumer goods up to S$20,000 and motor vehicles up to S$55,000, so larger equipment and vehicle deals usually fall outside them.
Effective interest rate (EIR) calculator
Enter the amount you are borrowing, the flat rate you were quoted, the number of monthly instalments and any upfront fees. The calculator shows the effective interest rate, the same loan’s rate on a reducing balance, your monthly instalment and the total you pay in interest and fees.
A flat rate of 5.00% over 60 months costs the same as about 9.15% a year on a reducing balance, 1.83 times the advertised rate.
Estimate only. Assumes equal monthly instalments paid at the end of each month and no other charges. Your lender’s disclosed figure is the one to rely on.
Both figures describe the same loan. The reducing-balance rate is the loan’s monthly rate multiplied by 12, which is how a monthly-rest loan is quoted. The EIR compounds that monthly rate over the year, so it is always a little higher. Comparing a flat-rate quote with a loan priced on monthly rest? Use the reducing-balance rate. Comparing it with a lender’s stated EIR? Use the EIR, but check which method the lender used (see the formula section below).
Flat rate vs effective interest rate: what is the difference?
The government’s MoneySense programme puts it plainly: with a flat rate, interest payments are calculated based on the original loan amount, so for flat rate loans the EIR is higher than the advertised rate. With a monthly rest rate, interest is charged on the outstanding balance, so it falls as you repay. MoneySense notes that flat rates are commonly used for car loans and personal term loans, and monthly rest for home loans. In our experience, hire purchase for commercial vehicles and equipment is usually quoted flat as well.
Here is the difference on a S$100,000 loan over five years, with both quotes showing the same 5% headline:
| S$100,000 over 5 years | 5% flat rate | 5% on a reducing balance |
|---|---|---|
| Monthly instalment | S$2,083.33 | S$1,887.12 |
| Total interest | S$25,000.00 | S$13,227.40 |
| Total repaid | S$125,000.00 | S$113,227.40 |
| Rate on a reducing balance | 9.15% | 5.00% |
The flat-rate loan charges S$25,000 in interest because every month it charges as if you still owed the full S$100,000. By the final year you owe less than S$25,000, but you are still paying interest on S$100,000.
Key Takeaway: A 5% flat rate on a S$100,000 five-year loan costs S$25,000 in interest, against S$13,227 for the same loan at 5% on a reducing balance. The flat-rate loan is equivalent to 9.15% a year on a reducing balance (EIR 9.55%), based on equal monthly instalments and no fees.
Does a flat rate really double?
Not quite. We ran the numbers on the flat rates our clients are quoted, 2% to 8% over one to seven years, and the EIR comes out at 1.82 to 1.96 times the flat rate, not the double you often read about. Quoted on a reducing balance, the same loans are 1.71 to 1.91 times the flat rate. That multiple shrinks as the rate rises and, beyond about three years, as the term lengthens.
The table below gives the EIR for common flat rates and terms, with the reducing-balance equivalent in brackets. Use it as a quick check on any quote.
Swipe sideways to see the full table →
| Flat rate | 1 year | 3 years | 5 years | 7 years |
|---|---|---|---|---|
| 2% flat | 3.73% (3.67%) | 3.89% (3.82%) | 3.88% (3.82%) | 3.85% (3.79%) |
| 3% flat | 5.63% (5.49%) | 5.83% (5.68%) | 5.79% (5.64%) | 5.72% (5.57%) |
| 4% flat | 7.55% (7.30%) | 7.77% (7.51%) | 7.68% (7.42%) | 7.55% (7.30%) |
| 5% flat | 9.49% (9.10%) | 9.72% (9.31%) | 9.55% (9.15%) | 9.34% (8.97%) |
| 6% flat | 11.46% (10.90%) | 11.66% (11.08%) | 11.40% (10.85%) | 11.11% (10.58%) |
| 8% flat | 15.45% (14.45%) | 15.56% (14.55%) | 15.08% (14.13%) | 14.59% (13.69%) |
Two patterns are worth knowing. First, the distortion peaks at around two to three years and then eases off, so a seven-year hire purchase is slightly less distorted than a three-year one. Second, on a reducing-balance basis the multiple falls as the rate rises: 2% flat over three years is 1.91 times, while 8% flat over seven years is 1.71 times. At very high rates, compounding can push the EIR past double: the MoneySense example below is a 20% flat rate that becomes a 41.3% EIR. Either way, the rule of thumb is a rough guide at best.
How upfront fees change the effective rate
A processing or arrangement fee is money you pay for the loan but never get to use, so it raises the effective rate. Its effect depends on how long you have to spread it.
Swipe sideways to see the full table →
| Tenure (5% flat) | EIR, no fee | EIR with a 1% fee | Added by the fee |
|---|---|---|---|
| 1 year | 9.49% | 11.58% | +2.09 points |
| 3 years | 9.72% | 10.47% | +0.75 points |
| 5 years | 9.55% | 10.02% | +0.47 points |
| 7 years | 9.34% | 9.69% | +0.35 points |
This is why a short-term facility with a “small” fee can be the most expensive option on the table. On a one-year loan at 5% flat, a 1% fee adds more to the EIR (2.09 points) than raising the flat rate from 5% to 6% would (1.97 points). Always enter every upfront cost, including any amount deducted from the disbursement and any arrangement or broker’s fee.
How to calculate the effective interest rate: formula and Excel
The effective interest rate formula is EIR = (1 + r)^12 – 1, where r is the loan’s true monthly rate. On a flat-rate loan r is not quoted, so you solve for it from the instalment: it is the monthly rate at which your instalments, discounted back to today, equal the cash you receive after fees. There is no simple closed formula for that, so it is found by iteration, which is what the calculator and Excel’s RATE function do.
To reproduce a flat-rate conversion in Excel or Google Sheets (enter the flat rate as 5%, not 5):
- Monthly instalment:
=(Amount + Amount * FlatRate * Months / 12) / Months - Monthly rate:
=RATE(Months, -Instalment, Amount - Fees) - Reducing-balance rate:
=RATE(Months, -Instalment, Amount - Fees) * 12 - Effective annual rate (EIR):
=(1 + RATE(Months, -Instalment, Amount - Fees))^12 - 1
For the S$100,000, 5%, 60-month example the instalment is S$2,083.33, RATE returns 0.7629% a month, the reducing-balance rate is 9.15% and the EIR is 9.55%. If a lender quotes a monthly-rest rate instead, =EFFECT(rate, 12) converts it to an EIR: =EFFECT(6%, 12) returns 6.17%.
Which annual figure counts as the EIR? MoneySense’s flat-rate examples compound the monthly rate over the year. Its own example is a S$1,000 loan repaid in 12 monthly instalments of S$100, which it shows as an EIR of 41.3%. Enter S$1,000, a 20% flat rate and 12 months into the calculator above and it returns exactly 41.3%. MoneySense also treats a monthly-rest loan’s advertised rate as its EIR, and some lenders likewise quote the monthly rate multiplied by 12, which gives a lower figure (9.15% instead of 9.55% in our example). That is the calculator’s reducing-balance rate, so whichever method a lender uses, you can match it.
Where Singapore businesses see flat-rate quotes
- Hire purchase for vehicles and equipment. For goods covered by the Hire-Purchase Act, meaning consumer goods worth up to S$20,000 (including GST) and motor vehicles worth up to S$55,000 (excluding the COE), the owner must state the effective interest rate in a written statement before you sign, and generally cannot enforce an agreement signed without it. A S$200,000 machine, or a vehicle priced above S$55,000 excluding the COE, is outside those limits, so you may only see a flat rate.
- Bank and digital-lender instalment loans. Some term loans are advertised at a flat rate with the EIR alongside. Banks are expected to show the EIR in their loan advertisements under the industry advertising code, so look for it in the small print.
- Government-supported loans. Even under the Enterprise Financing Scheme, the interest rate is subject to the participating lender’s assessment of risks involved. The scheme shares the lender’s risk; it does not set the price or how the price is quoted, so ask for the EIR.
What the effective rate still leaves out
The EIR is the best single number for comparing loans, but it is not the whole picture. Before you decide, check:
- Early settlement terms. Ask how the outstanding balance is worked out if you repay early, and whether there is a penalty. For agreements it covers, the Hire-Purchase Act requires the owner to disclose the method of calculating the loan balance on early settlement. Outside the Act, it is whatever the contract says, and on a flat-rate loan early settlement can save less than you expect.
- Deposits and balloon payments. A large deposit or a final balloon changes the cash flow and the amount financed. Run the calculator on the amount financed, not the price of the asset.
- Variable rates. A floating rate pegged to SORA can move during the term. The EIR you are shown is a snapshot, not a promise.
- Security and guarantees. A cheaper rate that needs a director’s personal guarantee or a charge over property is not like for like with an unsecured offer.
- Tax. On hire purchase of equipment and commercial vehicles, interest on an asset used to earn income is generally deductible, and the cost of the asset is claimed through capital allowances as you pay the principal and deposit. The exception is cars: IRAS gives no capital allowances on S-plated, Q-plated or RU-plated cars, and no deduction for motor vehicle expenses incurred on them, even when they are used for business, so do not assume the hire purchase interest on such a car is deductible. Tax does not change the EIR, but it changes your after-tax cost, so compare offers on the same footing.
How we compare loan offers for clients
When we broker a business loan or equipment facility, the first thing we do with a set of offers is put them on the same footing. A hire purchase quote at a low flat rate, a term loan priced on monthly rest and a facility with a chunky arrangement fee look very different on paper, and the cheapest-looking one is often not the cheapest. Converting every offer to its effective rate, then checking the fees, security and early-settlement terms, is usually where the decision becomes obvious.
If you are weighing a specific quote, our guides to SME business loans and working capital loans set out the options side by side, and our equipment and machinery financing page explains how hire purchase, leases and term loans compare. The same comparison applies to trade financing, project financing and invoice financing. Lenders will also want current numbers, so if your books are behind, our accounting team can bring them up to date first.
Frequently Asked Questions
What is the effective interest rate in Singapore?
The effective interest rate (EIR) is the true yearly cost of a loan, taking into account that you repay the balance over time and any upfront fees. In Singapore, hire purchase agreements within the Hire-Purchase Act limits must state it in writing before you sign, and banks are expected to show it in their loan advertisements. For flat rate loans the EIR is higher than the advertised rate: a 5% flat rate over five years works out to an EIR of about 9.55%.
How do you calculate the effective interest rate?
Work out the monthly instalment, then find the monthly interest rate at which those instalments, discounted back to today, equal the cash you actually receive after fees. Compound that monthly rate over a year to get the EIR: EIR = (1 + monthly rate) to the power of 12, minus 1. There is no simple closed formula for the monthly rate, so it is solved by iteration, which is what the calculator on this page and the RATE function in Excel do.
Is there an Excel formula for effective interest rate?
Yes. For a flat-rate loan, first compute the instalment as (Amount + Amount x Flat rate x Months / 12) / Months. The EIR is then =(1+RATE(Months,-Instalment,Amount-Fees))^12-1. For the rate the same loan would carry on a reducing balance, use =RATE(Months,-Instalment,Amount-Fees)*12. If you already have a monthly-rest rate, =EFFECT(rate,12) converts it to an EIR, so =EFFECT(6%,12) returns 6.17%.
Why is the EIR higher than the flat rate?
Because a flat rate charges interest on the full original amount every month, even though you are repaying the loan and owe less each month. By the last year of a five-year loan you may owe less than a quarter of the original amount but still pay interest on all of it. The EIR measures the cost against what you still owe, so it comes out higher, at typical business rates close to double the flat rate.
Does the effective interest rate include fees?
It should, if you want a fair comparison, because a processing or admin fee is money paid for the loan that you never get to use. The calculator on this page includes any upfront fees you enter. Lenders can differ in what their disclosed figure includes, so ask whether the EIR you are shown includes processing and admin fees, and compare every offer on the same basis.
What is the difference between nominal and effective rates?
A nominal rate is a yearly rate before compounding, such as a loan at 9.15% a year charged monthly on a reducing balance. The effective rate compounds the monthly rate over the year, so the same loan has an EIR of about 9.55%. A flat rate is a third basis again: it is charged on the original amount, and 5% flat over five years is the same loan as 9.15% nominal or 9.55% effective.
Talk to us before you sign
Excellence Singapore Group is a corporate services firm that brokers business loans, equipment and trade facilities for Singapore SMEs. Our job is to find you the offer with the lowest true cost that you can get approved. If you have a quote on the table, talk to us and we will tell you what it really costs.
