Summary: Flat-rate loans quote an attractive p.a. % but charge interest on the original principal for the entire tenure. Reducing-balance loans charge interest on the outstanding balance, so your true cost closely matches the advertised rate. The flat-rate abolition steers the market toward clearer, comparable pricing.
Why this change matters
- Transparent pricing: One effective rate (EIR) rather than flat % that understates cost.
- Fair amortisation: You pay less interest as the balance falls.
- Better decisions: Apples-to-apples comparisons across banks and promotions.
Scenario comparison (3.5% flat vs 3.5% reducing)
Principal
RM80,000.00
Tenure
5 years / 60 months
| Item | Flat 3.5% p.a. | Reducing 3.5% p.a. |
|---|---|---|
| Monthly payment | RM– | RM– |
| Total repayment | RM– | RM– |
| Total interest | RM– | RM– |
| Implied effective rate (flat → EIR, simple) | – % p.a. | – % p.a. |
| Implied effective rate (flat → EIR, compounded) | – % p.a. | – % p.a. |
Try it yourself: Emzek Car Financing Comparison
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Tip: For flat-rate loans, the effective rate is higher than quoted. We solve for the reducing-balance rate that gives the same monthly instalment.
Planner’s quick tips
- When comparing offers, insist on the effective interest rate (EIR).
- Check total repayment, not just instalment size; balloon payments and fees can distort comparisons.
- Build a 3–6 month emergency fund before taking new debt.
- Consider MRTA/MLTA protection sized to outstanding balance, not original principal.