Considering that loan interest rates are a crucial factor when applying for a loan—whether through a bank or an online fintech platform—no one wants to be burdened with sky-high interest. Interest rates can vary depending on the platform, loan amount, and repayment period.

It's important to understand the exact interest rate being charged. But it’s not just about knowing the rate—you should also compare rates between different providers to find the lowest possible rate. This helps keep monthly installments manageable.

It’s also a good idea to learn how to calculate loan interest yourself. This knowledge allows you to strategize and ensure timely payments until the loan is paid off in full.

Although most lenders provide a monthly repayment schedule to simplify the process, calculating it on your own helps manage your finances more effectively.

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Types of Loan Interest Rates

1. Fixed Interest Rate

A fixed interest rate doesn’t change over a specific period, so there’s no need to recalculate every time market interest rates fluctuate. This stability means the interest rate stays constant throughout the loan or investment term.

Formula for calculating bank loan interest with a fixed rate:

Monthly Interest = (Loan Principal × Interest Rate × Loan Term) / Number of Months

Example:
You borrow Rp120 million for a 12-month term at a 10% annual interest rate. Here's how to calculate it:

• Monthly principal:
  120,000,000 ÷ 12 = 10,000,000
   
• Monthly interest:
  10% × 120,000,000 = 12,000,000
  12,000,000 ÷ 12 = 1,000,000
   
• Total monthly payment:
  10,000,000 + 1,000,000 = 11,000,000
   

So, your monthly bill for one year would be IDR 11,000,000.

2. Floating Interest Rate

As the name suggests, floating interest rates do not have a fixed value. They fluctuate according to market conditions. The rate might decrease today and increase next month.

This type of interest is often used in mortgages (KPR). The rate might be fixed for the first year, then adjusted according to market conditions in subsequent periods.

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3. Effective Interest Rate

The effective interest rate is calculated based on the remaining loan principal each month. The less outstanding debt, the lower the interest charged.

You pay more interest at the beginning of the term, and it decreases over time. This makes effective rates often more favorable than flat rates.

Many lending platforms now offer automatic simulation tools, including Bank BRI and Bank Mandiri websites. Still, if you want to do the math yourself, here’s how:

Formula:

Loan Principal × Interest Rate ÷ 12 (months)

Example:
Borrow Rp10 million for one year with a 5% annual interest:

• 10,000,000 × 5% ÷ 12 = IDR 42,000
   

In the first month, you pay Rp42,000 in interest.
Remaining balance: 10,000,000 – 42,000 = IDR 9,958,000

For the second month:
9,958,000 × 5% ÷ 12 = IDR 41,500 (and so on)

4. Annuity Interest Rate

Annuity loan interest is a bit more complex. It’s calculated by adding the principal and interest into equal monthly installments.

Initially, you pay more interest and less principal, but this flips as the loan nears completion.

Example:
You borrow Rp12,000,000 at 10% annual interest for 12 months.

Formula:

Loan Principal × interest rate × (1+interestrate)term/((1+interestrate)term–1)(1 + interest rate)^term / ((1 + interest rate)^term – 1)

Calculation:
12,000,000 × 0.83% × (1.105 / 0.105) = IDR 1,054,991/month

You pay the same monthly amount, but the portion of principal and interest changes each month. See table:

Most banks provide a payment schedule, but it never hurts to calculate it yourself. Choose the interest type that suits your needs and financial capability.

Online Loans Usually Use Flat Rates

In online loans, the interest is usually flat—meaning the same amount is paid every month, including principal and interest, based on your chosen term.

This is also true for Neo Loan from neobank, which offers loans with a quick and easy process.

So, download the neobank app on  PlayStore or App Store, and apply for your loan Neo Loan. 

For complete information and terms & conditions regarding Neo Loan, visit the link https://s.id/webneoloan & if you want to apply for Neo Loan, click the link https://s.id/neoloan

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PT Bank Neo Commerce Tbk is licensed and supervised by the Indonesia Financial Service Authority (OJK) and Bank Indonesia (BI), and an insured member of Deposit Insurance Corporation (LPS).