Loan A says 12% p.a. Loan B says 12% p.a. Same loan amount, same tenure, and yet the total repayment can be very different. That surprises a lot of people because we tend to treat the “rate” like it tells the full story. But the real cost depends on how interest is calculated, such as a reducing balance method versus a flat rate method. If you’re comparing a loan in Singapore, this difference can add up to hundreds or even thousands over the life of the loan. In this article, you’ll see why that happens and how to compare loans properly.
The “Same Rate” Myth: How Loan Pricing Can Vary Even When The Numbers Match
A matching headline rate does not automatically mean a matching total cost. Interest calculation methods can change how much you actually pay over time.
Below are the key reasons two similar-looking offers can lead to different repayments.
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Interest is calculated on a different base amount
With a reducing balance method, interest is charged on the remaining principal after each repayment. As your outstanding balance falls, the interest portion decreases. With a flat rate method, interest is calculated on the original loan amount for the entire tenure, even though you are gradually paying it down. This difference alone can significantly change the total interest paid.
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The total interest paid over time is not the same
Two loans, both advertised at 12% p.a., can result in very different total interest amounts. Under a flat rate structure, you effectively pay interest as if you still owe the full principal throughout the loan period. Under a reducing balance structure, you only pay interest on what you actually still owe. Over months or years, this gap can become substantial.
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The effective interest rate (EIR) can be much higher than the stated rate
A flat rate often translates into a higher effective interest rate when calculated properly. While the headline number may look competitive, the true annualised cost can be significantly higher. This is why borrowers comparing loans in Singapore should always look beyond the advertised rate and check the effective rate or total repayment figure.
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Monthly instalments can look similar, but the breakdown differs
Two loans may show comparable monthly instalments, creating the impression that they cost the same. However, in a flat rate loan, a larger portion of each instalment effectively goes toward interest calculated on the full principal. In a reducing balance loan, the interest component gradually shrinks as you repay the loan. The structure affects how much of your payment truly reduces your debt.
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Early repayment affects each structure differently
With reducing balance loans, paying off the loan earlier usually means paying less total interest, because interest is tied to the remaining balance. With flat-rate loans, the total interest is often predetermined upfront, and rebates may be limited or calculated differently. This can impact borrowers who intend to clear their cash loans ahead of schedule.
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Short tenures can still carry a cost difference
Even for short-term borrowing such as instant cash loans in Singapore, the calculation method matters. While the fast cash loan period may be brief, the way interest is applied can still result in a noticeable difference in total repayment, especially for larger loan amounts.
Ultimately, the clearest way to compare two loans with the same stated rate is to look at the total amount payable from start to finish. The method of interest calculation determines that final number, not just the percentage shown in the advertisement.
How To Compare Two Loan Offers Properly: A Checklist
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Compare the total repayment amount (not just the rate).
Ask for the full figure you will pay back over the entire tenure, including principal and total interest. Two loans with the same advertised rate can still produce different totals because the interest may be calculated differently.
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Request the EIR (Effective Interest Rate), or calculate it.
The EIR reflects the true annualised cost after accounting for how interest is applied and how repayments are scheduled. If the lender doesn’t provide it, use a reliable loan calculator and input the exact loan amount, tenure, instalment amount, and any upfront fees to estimate the effective rate.
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Check all fees and charges upfront.
Look beyond interest and review processing fees, administrative fees, disbursement charges, and any platform or documentation fees. Also confirm late payment charges, whether they are fixed or percentage-based, and when they kick in (e.g., after 1 day vs after a grace period).
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Confirm the repayment structure and how instalments are allocated.
Verify whether instalments are equal throughout, and how each payment is split between interest and principal. If interest is “front-loaded” (a larger portion early on), the loan may cost more than expected, and you may not reduce the principal as quickly as you think.
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Review early repayment terms carefully.
Ask whether you can settle the loan early, and if doing so reduces the total interest payable. Check for early settlement penalties, administrative charges for early closure, and whether any interest rebate applies (and how that rebate is calculated).
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Read the fine print on how the rate is presented.
Clarify whether the rate is quoted “per month” or “per annum,” and whether it is a flat rate or based on a reducing balance. A rate that looks small on a monthly basis can add up quickly over a year, so always convert and compare using the same time basis.
Fast Money supports borrowers by providing clear loan information and repayment details, so you can compare options based on the numbers that matter, not just the headline rate. Our team walks you through the total repayment, fees, and key terms, making it easier for you to assess affordability and avoid surprises later. Our goal is to ensure a straightforward borrowing experience with transparency at every step.
Conclusion:
In the end, A “same rate” comparison only holds up when both loans calculate interest the same way, and that’s often not the case. Always judge an offer by the total repayment, the effective interest rate, and the full set of terms, not the headline number on the first page. For a faster, clearer comparison, apply with Fast Money today and get a full, upfront view of your repayments and fees before you commit. Contact us today!
