Flat rate vs APR: which to compare on

2 min read

Looks lowerFlat rate

Tells the truthAPR / total

Compare like-for-likeThe rule

Why a flat rate flatters

A flat rate charges interest on the original loan amount for the whole term, even as you repay and the balance falls. So a 'low' flat rate can equate to a much higher APR, which charges on the reducing balance. Two loans can quote the same flat rate yet cost very different amounts; a flat rate quoted against an APR is not comparing like with like. See flat rate vs APR and understanding APR vs flat rate.

What to compare on

Figure	What it tells you
Flat rate	Interest on the original sum — understates true cost
APR	Annualised cost on the reducing balance — comparable
Total cost in pounds	The plain truth — always compare this

The safest comparison is the total cost in pounds over the actual term, followed by the APR. Treat any flat rate with suspicion until you have converted it. Use the loan comparison calculator to line offers up fairly.

The short-term nuance

For very short terms, even the APR can look alarming because it annualises a cost you only bear for weeks — so for short facilities, the total pounds figure is the most honest of all. A high APR on a facility repaid in eight weeks can still be cheap in absolute terms. Focus on what you actually pay, over the actual term. See comparing offers.

The Credicorp view

Credicorp prices transparently so you can compare on the figure that matters — the total cost in pounds — with no flat-rate flattery. Lent to the company with no personal guarantee. Compare our business loans or register to apply. Educational content, not financial advice.

Frequently asked questions

Is a flat rate the same as an APR?

No. A flat rate charges interest on the original loan amount for the whole term, even as you repay, so it understates the true cost. An APR charges on the reducing balance and is comparable across loans. A low flat rate can equate to a much higher APR, so never compare one against the other directly.

Which figure should I compare loans on?

The total cost in pounds over the actual term is the most honest, followed by the APR. Treat any flat rate with suspicion until you convert it. For very short facilities, the total pounds figure beats even the APR, which can look alarming simply because it annualises a cost you bear for only weeks.

Why does a low flat rate cost more than it looks?

Because it charges interest on the full original amount throughout the term, ignoring that your balance falls as you repay. That makes the effective cost higher than the headline suggests. Converting it to an APR or a total-pounds figure reveals what you actually pay.