Converting a flat rate to an APR: the maths,

2 min read

Flat ≈ ½ APRRough rule

On the full sumNot the balance

Convert to compareAlways

Amount borrowed (£)

Arrangement & other fees (£)

Annual interest rate (%)

Term (months)

Estimates an annualised cost including fees so you can compare offers like-for-like. Illustrative, not a statutory APR.

Why a flat rate understates the cost

A flat rate charges interest on the original amount for the whole term, even though you are paying the balance down. So you are charged interest on money you have already repaid. A reducing-balance rate charges only on what you still owe.

The rough conversion

As a rule of thumb, the APR is roughly double the flat rate for a loan repaid in equal instalments over a year or so. A 6% flat rate is around 11–12% APR. The exact figure depends on the term and repayment frequency, but the doubling is a reliable warning.

A worked example

Borrow £20,000 over two years at 10% flat. You pay 10% × £20,000 × 2 = £4,000 interest — regardless of the falling balance. On a 10% reducing-balance loan you would pay around £2,150. Same headline, nearly double the cost.

Convert, then compare

Ask the lender for the total amount payable, or convert the flat rate to an APR, before comparing with any other quote. The calculator below helps.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See APR vs factor rate and the flat rate to APR calculator.

Frequently asked questions

Is a flat rate ever the right choice?

It can be, on simple short-term finance where the total repayable is clearly quoted and competitive. Just never compare a flat rate against an APR without converting first.

Why does the flat rate roughly double?

Because you are charged on the full original balance throughout, but on average you only owe about half of it over the term. So the effective rate on what you actually owe is roughly double.

How exact is the doubling rule?

It is a close approximation for equal-instalment loans around a year long. For very short or very long terms, convert precisely using total repayable and term.