Flat rate

In the context of financing, the term flat rate refers to the flat interest rate, which is the percentage of interest imposed on loans. Flat interest rates are usually applied to loans which are issued in less developed countries. Imposition of flat rates is also a common practice in microfinance. As the term suggests, flat interest rates remain steady throughout the period during which payments are made. This set up is easy to understand and allows the borrower to know exactly how much will have to be paid each month until the loan obligation is completely fulfilled.

Developed countries usually discourage the adoption of this payment scheme. However, this remains popular in developing nations and may be preferred by first-time borrowers because it is very simple to determine how much is to be paid. Those who are not particularly math-savvy or are not equipped with enough knowledge in the field of finance do not have to worry at all about making payment calculations. On the other hand, if the borrower wants to make an advanced payment or pre-payment, he will not gain any benefit from doing so, as interest discounts are unavailable under this arrangement.

In the context of pricing, however, the term flat rate refers to the amount which an individual or company pays for a product or service. Since this is a set charge, buyers may prepare for the purchase in advance and set aside the required amount. Such a practice can be very helpful for businesses or even individuals who need to allocate funds for other expenses as well.

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