APR v Flat rate loan rates.......
Discussion
So,
Could any PH maths gurus kindly explain in simple terms what the actual difference is between the two....quoting figures as an example......
I was trying to explain to a friend yesterday, but found it difficult to put into layman's terms, and Google isn't much help either.......
I realise best advice is usually to consider the APR rate when deciding which lender to go with.....why is this??..Is it just to compare like with like.........
Thanks , as always in anticipation....
WR.
Could any PH maths gurus kindly explain in simple terms what the actual difference is between the two....quoting figures as an example......
I was trying to explain to a friend yesterday, but found it difficult to put into layman's terms, and Google isn't much help either.......
I realise best advice is usually to consider the APR rate when deciding which lender to go with.....why is this??..Is it just to compare like with like.........
Thanks , as always in anticipation....
WR.
Flat rate is simple. If you have a flat rate of 6% and you borrow £100 then you pay back £6 for every year you borrow the money. APR is load of old rubbish that is really only applicable to mortgages, have you seen the sums you need to calculate it? Don't worry about the APR, just concentrate on the flat rate. [/dealermodeoff]
OllieWinchester said:
Flat rate is simple. If you have a flat rate of 6% and you borrow £100 then you pay back £6 for every year you borrow the money. APR is load of old rubbish that is really only applicable to mortgages, have you seen the sums you need to calculate it? Don't worry about the APR, just concentrate on the flat rate. [/dealermodeoff]
Yeah, just forget the charges for setting up the agreement etc... they don't count 
From MSE (only relevant source I could find)
When buying a car you need to be particularly careful as most dealerships will quote a flat rate of interest, rather than an APR which most banks use. This mightn't sound a big deal, but actually we're talking thousands of pounds.
It works like this.
APR Rate: This is the interest you are charged on the outstanding debt. So borrow £5,000 over 5 years and in the first year you'll be paying interest on quite a hefty chunk. However, in the last year you'll probably only have around £1,000 left to pay off, so you'll only be charged interest on this.
Flat Rate: This means you are charged the interest on the original amount you borrow, no matter how much you have paid off. So with our £5,000 loan over 5 years, even in the last year you're still paying interest on £5,000 despite the fact you've paid most of it off.
So this means if you're offered a flat rate of 6%, which sounds very cheap, it's actually roughly equivalent to an APR of 12% which is way over the odds.
The easy way round this is always ask the question “what is the total amount I will repay including all charges?” and compare like this. In fact car dealership loans are rarely competitive (unless they've an interest free promotion) and you'd be much better off simply going for a normal personal loan.
When buying a car you need to be particularly careful as most dealerships will quote a flat rate of interest, rather than an APR which most banks use. This mightn't sound a big deal, but actually we're talking thousands of pounds.
It works like this.
APR Rate: This is the interest you are charged on the outstanding debt. So borrow £5,000 over 5 years and in the first year you'll be paying interest on quite a hefty chunk. However, in the last year you'll probably only have around £1,000 left to pay off, so you'll only be charged interest on this.
Flat Rate: This means you are charged the interest on the original amount you borrow, no matter how much you have paid off. So with our £5,000 loan over 5 years, even in the last year you're still paying interest on £5,000 despite the fact you've paid most of it off.
So this means if you're offered a flat rate of 6%, which sounds very cheap, it's actually roughly equivalent to an APR of 12% which is way over the odds.
The easy way round this is always ask the question “what is the total amount I will repay including all charges?” and compare like this. In fact car dealership loans are rarely competitive (unless they've an interest free promotion) and you'd be much better off simply going for a normal personal loan.
Plotloss said:
APR is double flat, roughly.
I realise that Plotters, but thanks anyway.....
Several years ago, I went into a car showroom with my elderly(not very financially savvy) in laws as they were considering buying a small car, and needed a very small loan to top it up...
I asked the salesman what the actual APR was, and he seemed reluctant to tell me, continually quoting the flat rate, until I insisted......
It turned out to be three or four percentage points over what a typical high street bank loan APR was at that time, so no wonder...........
swerni said:
grumbledoak said:
No smiley that I could see, though his little '[/dealermode]' thingy might be a clue.
I thought 'Flat rate' in that form was the preserve of loan sharks- you keep on paying interest on money you have already re-paid. It hides the real cost.
sells cars and drives an imported mx5I thought 'Flat rate' in that form was the preserve of loan sharks- you keep on paying interest on money you have already re-paid. It hides the real cost.
need I say more
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