Not too sure what the arguments are about

But simple interest rates (HP, personal loans) are as per its name, simple to calculate. But it doesn't reflect the true outstanding balance at the moment because the installments are calculated with the interest included throughout the tenure of the loan. What if you decided to settle the loan early? The bank would have to give you a rebate on unpaid interests, but this is not efficient and the calculation can be very convoluted. And when things are convoluted, the borrowers become the victim.

So BNM encouraged banks to adopt the annualized interest rate. It is a fairer way to calculate the installments and displaying the interests. It can also be used to calculate your interest on a daily basis ([interest %/ 365] x your outstanding for the day)

To compare the two rates, a HP to a mortgage for example, you need to convert one of them to the other. I would convert the HP rate (simple interest) to annualized interest rate.

In fact if I am not mistaken, in CIMB clicks, the outstanding of a car loan that I saw was calculated based on annualized interest, but the marketing was done with simple interest - I believe the banks are catering to the market - people are used to seeing HP promoted at 2-4% (simple interest), but if you convert this to annualized interest, it would be 4-6% which would scare their potential customers.

This post has been edited by wild_card_my: Dec 6 2018, 10:05 AM