A 7% flat rate costs more
than a 12% APR
That is not a trick of presentation, it is arithmetic. A flat rate is charged on the whole amount for the whole term, even though you are paying the balance down every month. An APR is charged on what you still owe. Compare the two by eye and you will pick the dearer loan.
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What each number is actually measuring
- A flat rate ignores your repayments
Borrow £40,000 at 7% flat over 3 years and the interest is £8,400: 7% of the full £40,000, three times over. It makes no difference that by month 30 you only owe a few thousand. You are charged as though you held all of it the whole time.
- An APR follows the balance down
The same £40,000 at 7% APR costs about £4,470 in interest, because each month you are charged only on what is left. Same headline number, nearly half the cost.
- The rough conversion
On a loan repaid monthly, the APR is usually a little under double the flat rate. 7% flat is roughly 13% APR. If a lender quotes a flat rate, double it before you compare.
- Why a monthly rate is different again
Short-term lenders quote per month, and that compounds: 2% a month is about 27% a year, not 24%. It is not deception, it is a different unit, but it is the third number in a conversation that already had two.
Common questions
How does an APR differ from an interest rate?
An interest rate is the cost of the money. An APR is meant to be everything — the rate plus the compulsory fees — expressed as one annual figure so two offers can be set side by side. That is the whole point of it, and it is why a 9% rate with a 4% arrangement fee is not a 9% deal.
Are there hidden fees inside an APR?
The opposite: an APR exists to stop fees being hidden, and a properly calculated one already contains the compulsory charges. What sits outside it is anything optional or conditional — early settlement charges, late payment fees, a broker fee if one is charged. We are paid by the lender and charge you nothing, so ours is not among them.
Can I negotiate the rate?
On price, rarely, because it comes out of the lender’s own scoring. On everything around it, more often than people try: the term, the arrangement fee, whether there is an early settlement charge, and the size of a personal guarantee are all movable on some of the panel. Those are usually worth more than a fraction of a point.
Is a flat rate ever the better deal?
It can be, on a short term. Over three months there is barely any balance reduction, so flat and reducing come to almost the same thing. The gap widens with the term, which is why flat rates are most misleading on the longest loans.
How do I convert a flat rate to an APR?
For a monthly-repaid loan, roughly double it. Precisely, it depends on the term and the number of payments, which is why we show you the total in pounds instead. Pounds cannot be quoted in a unit that flatters them.
Do lenders have to show an APR?
For regulated consumer credit, yes, in defined circumstances. Most business lending to limited companies is not regulated consumer credit, so a lender can quote a flat rate, a monthly rate or a factor rate with no APR alongside it. That is exactly why comparing in pounds matters.
What is a factor rate?
A multiplier rather than a rate: borrow £10,000 at a factor of 1.2 and you repay £12,000. It is common on merchant cash advances. It is not an interest rate at all and cannot be compared with one without working out the term first.
See the cost in pounds
One enquiry shows each option with its monthly payment, total and interest.
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