What are Effective Interest Rate (EIR) and Annual Percentage Rate (APR)?
The Annual Percentage Rate (APR) is used to calculate the interest payable on a flat rate basis.
The Effective Interest Rate (EIR) is the rate that reflects the true cost of borrowing and takes into account total charges. It's computed over a reducing balance basis.
For example, if you took a loan of S$10k with a tenure of 3 years:
APR: 3% p.a.
EIR: 5.69% p.a.
Tenure: 3 years
Loan drawn: S$10k
Total interest payable = Loan * APR * tenure
= $10,000 * 3% * 3 years
The interest payable component forms part of your monthly repayment amount, which is reflected in-app in your repayment schedule. For example,
EMI amount = (interest payable + principal) / tenure
= ($900 + $10,000) / 36 months
Your monthly repayment amount over the 3 year tenure will therefore be $302.78.