Flat Rate to EIR in Singapore: 5 Mistakes to Avoid
Converts an advertised flat interest rate into the equivalent effective interest rate. The maths is not complicated, but a handful of errors come up again and again in this and related loans & finance calculations. Here is what to watch for.
Calculators make it easy to compare scenarios side by side: a shorter tenure versus a lower instalment, a higher deposit versus more cash in hand, or paying down debt versus investing. Seeing the total cost, not just the monthly figure, usually makes the better choice obvious.
Inflation erodes buying power, so a savings goal set in today's dollars needs to be adjusted upwards for the years it will take to reach it. Singapore's core inflation has varied widely over the past decade, so it is worth testing a range of rates.
1. Only looking at the monthly payment
A longer tenure lowers the instalment but raises the total interest paid.
2. Paying only the minimum on a card
Minimum payments barely cover interest, so balances can take years to clear.
3. Ignoring fees
Processing fees, platform fees and early repayment penalties reduce real returns.
4. Forgetting inflation
S$1 million in 30 years will buy much less than S$1 million today.
5. Using unrealistic returns
Projecting 10% a year for decades can make goals look easy; test lower rates too.
The correct method
EIR is the rate that makes the present value of the instalments equal the loan.
For example, with these inputs:
- Flat rate (% a year): 3
- Term (years): 5
the calculator returns:
- Effective interest rate: 5.64%
Related calculations
- Split the Bill Calculator: Splits a bill evenly.
- Credit Card Payoff Calculator: Shows how long a card balance takes to clear at a fixed payment.
- Retirement Savings Calculator: Projects retirement savings outside CPF.
- Emergency Fund Calculator: Sets a target for your rainy-day savings.
The Flat Rate to EIR Converter applies the formula consistently, so it is a quick way to double-check your own working.
Run your own numbers: Flat Rate to EIR Converter