All of us know what interest rates are. For savings, the interest rate is how much the bank pays you for putting your money into a savings account. For loans, the interest rate is how much the bank charges you for the money you borrow from it.

But different loans actually have different types of interest rates that calculate your interest payments differently. For example, a flat annual interest rate of 2% isn’t the same as a reducing balance interest rate (What’s that? Find out more below) of 2%.

So for a consistent comparison of the cost of a loan, always look for its Effective Interest Rate (EIR) or Effective Profit Rate (for Syariah-compliant loans).