What’s the real interest on your loan?
Car and personal loans quote a flat rate. The real rate (EIR) is close to double.
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Flat rate vs real rate (EIR)
| Flat rate | 3 years | 5 years | 7 years |
|---|---|---|---|
| 2% | 3.89% | 3.88% | 3.85% |
| 2.50% | 4.86% | 4.84% | 4.79% |
| 2.78% | 5.40% | 5.37% | 5.31% |
| 3% | 5.83% | 5.79% | 5.72% |
| 3.50% | 6.80% | 6.74% | 6.64% |
Questions
Why is the EIR so much higher than the flat rate?
With a flat rate, interest is worked out on the original amount every year. But you repay part of the loan every month, so you are paying interest on money you no longer owe.
Which rate should I compare?
Always compare EIR. Banks must show it for personal loans. A 3% flat loan and a 5.5% EIR loan can cost about the same.
How long can a car loan be?
Up to 7 years. You can borrow up to 70% of the price for cars with OMV up to $20,000, and 60% above that.