Flat rate vs EIR: the number that tells you a loan's real cost
This is the single most useful thing to understand before taking any loan in Singapore. The interest rate a lender advertises is often the flat rate — and it almost always makes a loan look cheaper than it really is. The number that tells the truth is the Effective Interest Rate (EIR).
Flat rate: the headline number
A flat rate is calculated on the original loan amount for the entire tenure — as if you never paid any of it down. But you do pay it down, every month. So while you are charged as if you still owe the full sum, you actually owe less and less over time. That gap is why the flat rate understates the real cost.
EIR: the number that tells the truth
The Effective Interest Rate accounts for the fact that your outstanding balance reduces as you repay, and it folds in the repayment schedule and certain fees. It is the honest, comparable cost of borrowing. As a rough guide, the EIR on a typical instalment loan can be close to double the advertised flat rate — which is exactly why lenders advertise the flat number.
A simple way to think about it
Imagine two loans advertised at the same flat rate. One runs over a longer tenure than the other. On the flat-rate sticker they look identical — but their EIRs, and the total interest you actually pay, can differ significantly. Without comparing EIR, you are comparing marketing, not cost.
| What you see | What it means |
|---|---|
| "From 3.5% p.a." (flat) | Charged on the full original amount — understates real cost |
| EIR of ~6.5% p.a. | The true cost once repayment and fees are counted |
The figures above are illustrative to show the relationship — your actual rates depend on your profile and the lender.
If you only remember one thing before signing: compare loans on EIR, never on the flat rate.
How we help you compare fairly
When we bring back options from the lenders on our panel, we surface the EIR so you are comparing real cost, not headline rates. Our job is to get you approved for the amount you need on terms that genuinely work — and to make sure you understand what you are signing. We are an independent broker; our service fee is success-based and agreed upfront, so there is no upfront cost to you.
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