# Flat interest calculation

#### Flat Interest Calculation <a href="#flatinterestcalculation-flatinterestcalculation" id="flatinterestcalculation-flatinterestcalculation"></a>

The flat interest method calculates interest on the loan amount (principal) for the term of the loan account. The interest and principal components of all repayments is the same for the life of the loan account.

The calculations are:&#x20;

Interest = P \* r/100 \* n\
Interest Installment = Interest / number of Repayments\
Principal Installment = P / number of Repayments \
Payments = Interest Installment + Principal Installment&#x20;

Where,

P = loan amount (principal)\
r = rate of interest per period (e.g., per year, per month)\
n = term of the loan

**Example**&#x20;

A client borrows $1000 (P) with a interest rate of 2% (r) per month for four (n) months with four monthly payments.

Interest: $1000 \* 2/100 \* 4 = $80\
Interest installment: $80 / 4 = $20\
Principal installment: $1000 / 4 = $250\
Monthly installment (principal and interest): $20 + $250 = $270&#x20;

Related articles

* Page:[Enabling Floating Rate](/mifosx/user-manual/for-administrators-mifos-x-platform/administration/products/loan-products/loan-product-fields/enabling-floating-rate.md)
* Page:[Loan Products](/mifosx/user-manual/for-administrators-mifos-x-platform/administration/products/loan-products.md)
* Page:[Loan with term vary based on loan cycle](/mifosx/user-manual/for-operational-users-mifos-x-web-app/accounts-and-transactions/loan-accounts/loan-with-term-vary-based-on-loan-cycle.md)
* Page:[Tranche loan process](/mifosx/user-manual/for-operational-users-mifos-x-web-app/accounts-and-transactions/loan-accounts/tranche-loan-process.md)
* Page:[How to create new loan - Interest Recalculation](/mifosx/user-manual/for-operational-users-mifos-x-web-app/accounts-and-transactions/loan-accounts/how-to-create-new-loan-interest-recalculation.md)

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