Flat rate v APR interest rates

bfarrar

I have just read your Flat Rate v APR interest rates web page. You stated that as a rough guide if the flat rate is e.g. 6% then the APR could be 12%. I recently visited a car dealer and at the showroom they charged 7.5% "base rate" (their words not mine) and on their website 15% APR (showing that your rough guide is correct) however, should I go ahead with a deal, wouldn't my contract be better for me if it showed the APR interest rate rather than the flat rate charge because I may want to pay back the loan at the end of year 3 of 5 and the flat rate would sting me for interest, wouldn't it? How would I know which method they were using? I have compared the two types of loans based on the total amount I would end up paying but I still don't know which method they will use should I pay early, miss payments etc.

CLAPTON

'flat rate' and APR aren't methods of working out interest, they are ways of presenting the information to you.

So an APR of 15% will show the same total interest as the flat rate of 7.5% approximately (its not exactly right to say you multiple by 2)

Obvioulsy, car dealers like the 'flat rate' way of advertising because it tricks people into thinking its cheap compared to loans that mention APR.... so they can say our loans are cheaper than the banks ( incorrect of course)

The actual loan you get will quote the APR (it must do so by Law).

If you want to know what the early settlement or over payment situation or missed payment then you must ask for a copy of the credit agreement (before you sign anything) and take it away and read it.

The rules are different for HP loans and personal loans.

standupguy

Every regulated agreement will show the APR - it is just easier to work out payments using flat rates.

So do not worry, it is one and the same as far as what you pay.

You can ask the lender for a settlement figure at any time and they have strict rules they have to follow on how the settlement is calculated

tictax

The best comparison even with identical APRs is to compare the total amount repayable. This allows you to look at the actual cash you will need to repay.