Flat or Nominal interest rate is defined as a stated interest rate. This interest works according to the simple interest and does not take into account the compounding periods.
Effective interest rate is the one which caters to the compounding periods during a payment plan. It is used to compare the annual interest between funding with different compounding periods like week, month, year etc.
In general stated or nominal interest rate is less than the effective one. And the latter depicts the true picture of financial payments. Therefore, it is important to look at the effective interest rate when deciding to accept an offer to get funds or when investing.
To make matters less confusing for issuers, it may be simpler to look at the monthly repayment amount based on the rates offered to decide if the business cash flow is sufficient to repay the funding.
Bad Rate is used to predict the likelihood of the particular Note turning Bad within the next 12 months and is directly taken from CTOS SME Score where Fundaztic uses it as part of its credit evaluation process.
Bad is defined by CTOS as such:
1. Missed payments with outstanding more than RM200 for 90 days or more.
2. Written Off.
3. CCRIS Legal Status (Bankruptcy, Summons, Auctions, etc)
The Bad Rate by CTOS is derived from an analytical study on 1 million SME entities from BNM (BNM SME Definition: Under RM50 Million Turn over) using CCRIS and CTOS data.
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