What amount is the rate applied to?
A rate is only useful if you know its base and time period. Ask whether the rate applies to the starting principal or the remaining principal, and whether it is per month, per year or for the full loan term. Also ask when payments reduce the balance used in the next calculation.
A deliberately simple comparison
Both fictional examples below start at ₱6,000, run for three months and repay exactly ₱2,000 of principal at each month-end. Interest is charged monthly before that principal payment, at a hypothetical 2% per month. There are no fees or missed payments.
| Month | Flat interest | Reducing interest |
|---|---|---|
| 1 | ₱120 on ₱6,000 | ₱120 on ₱6,000 |
| 2 | ₱120 on ₱6,000 | ₱80 on ₱4,000 |
| 3 | ₱120 on ₱6,000 | ₱40 on ₱2,000 |
| Total interest | ₱360 | ₱240 |
Total repayments are ₱6,360 and ₱6,240 respectively. This uses equal principal repayments, not an equal-total-payment amortization formula. It is an explanation of the base, not an actual product quote.
Do not turn the example into a shortcut
Real schedules can use different payment timing, unequal principal payments, rounding and charges. A lower headline rate using one method can cost more than a higher rate using another method. There is no universal multiplier in this guide that converts every flat rate into an EIR.
Get the complete schedule
For a real comparison, obtain the cash received, every repayment date and amount, other charges and the disclosed EIR. Use the same loan amount and term where possible. Our calculator can check supplied peso totals, but it does not infer an amortization schedule from a headline rate.