Glossary

Flat rate

A flat rate charges interest on the original loan amount for the entire term, regardless of how much you have already repaid — so it usually costs far more than the headline number suggests.

2 min read

Full amountInterest on the original sum

~2xRoughly double the APR

Definition

A flat rate applies the quoted percentage to the full amount you originally borrowed, every year of the term, even though your outstanding balance is falling. Because the charge never reduces as you repay, the true annual cost — expressed as an APR — is close to double the flat figure.

In plain terms

A 6% flat rate over one year is roughly 11–12% APR. The monthly payment looks reasonable, but you are paying interest on money you have already handed back. It is the opposite of a reducing balance.

Why it matters for your company

Flat rates make cheap-looking quotes that are anything but. Before comparing a flat-rate offer with a reducing-balance one, convert both to total repayable or APR. See APR vs factor rate.