The flat rate method is generally used by financier to offer small loans and generally for short periods. The financier charges a constant rate of interest regardless of the term. The Original loan amount is used to calculate the interest for a period.
Take for example, by using the sliders below select the ‘how much’ slider to R10,000 then select the ‘which rate’ slider to 5% and lastly the ‘how long’ slider to 10 months. The flat rate calculator will show you that the monthly interest is R500, this is calculated by taking the amount of the loan by multiplying by the rate of 5%. If you change the ‘how long’ slider to any other term you will notice that the monthly interest of R500 stays the same. The term of the loan will ultimately decide how much your loan will cost.
The installment changes only because the principal changes. The principal changes because the original loan loam is divided by the term.
Continue to play with the sliders to give yourself a better learning experience.