What is flat rate on a loan???

pre123

i saw an advert for a loan to purchase a car or caravan 'i think'
and they quoted 1.6% flat rate
and they also quoted 6.5% APR
i was just wondering the difference between them and why a company would choose to quote a flat rate whereas most loan / credit quote just the APR, just seems to cause confusion:rolleyes:

CLAPTON

APR is real rate and it must be quoted by law
car companies just love to quote 'flat' rate as its lower

mind you 6.5% APR isn't a bad rate

pre123

CLAPTON wrote: »

APR is real rate and it must be quoted by law
car companies just love to quote 'flat' rate as its lower

mind you 6.5% APR isn't a bad rate

i guess its to draw people in but what does 'flat rate' actually mean in terms of interest payments??

Comyface

I don't know for sure, I'd also like someone 'in the know' to post the answer.

I kind of thought that, because APRs must include the effect of any fees on the rate, that the 'flat rate' was the interest rate not including set-up fees or redemption fees.

hundredk

pre123 wrote: »

i guess its to draw people in but what does 'flat rate' actually mean in terms of interest payments??

I think APR is the interest you pay in one year expressed as a % of what you borrowed, eg if you borrow £1000 and pay £100 per month (£1200 per year) the APR would be 20%, ie 200/1000.

Flat rate is compounded together with number of payments per year to arrive at the APR, tho not sure how the calculations work.

Anyone know how to covert from one to the other?

lawrie28

An APR is calculated including all fees and the reducing balance rate, and is quite hard to work out, so I am told.

A flat rate us easy. If you were quoted 1.6% flat, then you will pay 1.6% in interest per year of the agreement. So £1000 over 3 years at 1.6% is 1000*0.16 = £16.oo x 3 (years) =£48.00 total interest.

A general quick guide is that a flat rate is doubled to get an APR, which is usually about right.

In my opinion hte best way of comparing loans, or seeing what the cost is, is simply to use the monthly payments to work out the pound amount of interest to be repaid.

Don't go for the payment breaks or payments on signing either, ust a way of affecting the rates.

Robert_Sterling

The Flat Rate.

An "allowable fraud" use a lot in the second hand car business.

Suppose you buy a car for £3000.

They say the flat rate is 10% for 5 years.

What they mean is that they charge you interest at 10% on £3,000 all the time.

So each year the interest is £300

Total interest is £1,500

But you do not always owe £3,000.

Your debt is going down from £3,000 to £0 over the five year period.

The 10% Flat Rate hides the fact that that the true rate nearer to 20% per annum.

By law you have to quote the APR.

Quoting the flat rate does nothing other than "con" the customer.
Why it is not illegal only an MP would understand.

hundredk

Robert_Sterling wrote: »

Why it is not illegal only an MP would understand.

Perhaps MP's pay mortgage interest at APR rate but claim expenses at flat rate??