Let’s understand two types of interest rates.
Flat Rate
You could see the calculation of flat rate on almost every available loan on KoinP2P, by seeing the loan detail page.
Remember that the flat and effective rate given is in a year or per annum.
For a lump sum repayment loan, the rate given is definitely a flat rate.
Effective Rate and Compounding Effect
Effective rate can be obtained if you immediately reinvest the capital and interest you got from a repayment, specifically from loans that have installment repayment type.
So in other words, not just your capital will result in interest, but also your interest can be turned into capital which result in another interest.
That’s what compounding effect means.
Effective annual rate (EAR) is a calculation of how much interest you can make from the flat rate in multiple months after a year.
This is the formula of EAR:
You can see the difference of the result between flat rate and effective rate on this example:
- Funding amount: Rp10.000.000
- Interest rate: 12% a year,
- Repayment type: Installment
| No. | Bunga Flat | Bunga Bergulung |
| 1 | 10.100.000 | 10.100.000 |
| 2 | 10.200.000 | 10.209.333 |
| 3 | 10.300.000 | 10.328.871 |
| 4 | 10.400.000 | 10.459.565 |
| 5 | 10.500.000 | 10.602.457 |
| 6 | 10.600.000 | 10.758.685 |
| 7 | 10.700.000 | 10.929.496 |
| 8 | 10.800.000 | 11.116.248 |
| 9 | 10.900.000 | 11.320.430 |
| 10 | 11.000.000 | 11.543.670 |
| 11 | 11.100.000 | 11.787.744 |
| 12 | 11.200.000 | 12.054.600 |
| EAR | 20,546% |
If you reallocate the capital + interest you get each month to another loan with the same rate as your current ongoing loan, you can see the result here:
Graphical illustration of flat rate:
Graphical illustration of effective rate:
*This illustration assumes that you add IDR 1 mil as your capital that you get from interest on your current ongoing loan.