APR (Annual Percentage Rate)
APR is the standardised annual cost of credit, expressed as a percentage of the outstanding balance. It includes the interest rate plus any mandatory fees, calculated on the reducing balance (the balance reduces each month as you make payments). APR is the most useful metric for comparing deals from different lenders because it is standardised by regulation.
Flat Rate
Flat rate is the annual interest calculated on the original loan amount, not on the reducing balance. Because you're paying down the loan each month, the flat rate is applied to a figure that overstates the actual amount outstanding - which is why a 5% flat rate is roughly equivalent to 9–10% APR. Flat rate is commonly quoted in commercial asset finance because it is simpler to calculate monthly payments from, but it can make deals appear cheaper than they are when compared using APR.
Monthly Rate
Some commercial asset finance lenders quote rates as a monthly percentage rather than an annual rate. A rate of 0.7% per month is approximately 8.4% APR (simple calculation: 0.7 × 12 = 8.4%). Monthly rates are used because commercial borrowers often think in terms of monthly costs rather than annual rates. As with flat rates, you need to convert to APR to compare deals on a like-for-like basis.
Total cost comparison
The most important metric of all is the total amount payable - the sum of all monthly payments plus any deposit, option to purchase fee, and any other charges. This is the definitive way to compare two deals. As your broker, we'll always present deals showing the monthly payment, the total amount payable, and the APR so you can compare accurately.
Example comparison
Example: £20,000 van, 48-month term, no deposit. Deal A: quoted at 5.5% flat rate = approximately 10% APR. Deal B: quoted at 9.9% APR. These are approximately the same deal. Deal C: quoted at 1.0% per month = approximately 12% APR. This is the most expensive of the three.