How to calculate the flat rate paid on a loan



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Calculate the flat rate paid on a loan of Rs. 20,000 that is repaid over 5 years. Payments are made monthly. Each payment is Rs.500.

10%


12%


9%


11%



THIS WAS NOT DISCUSSED IN VIDEO KINDLY LET ME KNOW HOW TO SOLVE I AM FINDING IT DIFICULT TO UNDERSTAND FLAT RATE

2 Answer(s)


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Hi !
Flat rate is simply the simple interest charged over the period of loan. In the above question, the monthly payment is Rs. 500 and period of loan is 5 years or 60 months, so the total repayment will be = Rs.500*60 = Rs. 30,000. And hence, total interest paid will be = 30,000-20,000= 10,000. This is equal to 50% of 20,000 or the loan amount and for 5 years. Therefore to get the annual flat rate we simply divide by 5 i.e. =50%/5 = 10%. Which is the answer.

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