Flat rate to annual rate calculator
Some quotes use a flat rate. Enter the amount, flat rate and term to see the monthly repayment, total interest and the equivalent annual rate on a reducing balance.
Equivalent annual rate
9.3%
- Monthly repayment
- £1,597.22
- Total interest
- £7,500
- Total repayable
- £57,500
A flat rate charges interest on the full original amount for the whole term, so the true annual rate on the reducing balance is roughly double. Use this figure to compare quotes like for like (excluding fees).
Check eligibility for this amountIllustrative only. Actual rates, fees and terms depend on your circumstances and the lender. This is not an offer of finance.
How this calculator works
A flat rate charges interest on the full original amount for the whole term, even though you repay capital every month. So the true annual rate on the balance you actually owe is much higher, often close to double the flat rate.
Business finance doesn’t have to show an APR the way consumer credit does, so converting a flat rate is the fairest way to compare it with a loan quoted at an annual rate. Remember to compare fees as well.
The headline result is the equivalent annual rate: the reducing-balance rate that gives the same monthly repayment as the flat-rate quote. Use it to compare the flat-rate offer with a loan quoted at an annual rate over the same term. The monthly repayment, total interest and total repayable show the flat-rate offer exactly as quoted.
Try the same flat rate over different terms. For illustration only, a 5% flat rate on £50,000 converts to roughly 9.1% a year over 12 months, about 9.3% over 24 or 36 months, and about 9.2% over 60 months. So a rough rule of thumb is that the equivalent rate is often a little under double the flat rate, though the calculator gives you the actual figure.
The conversion only covers interest. Arrangement, documentation and option-to-purchase fees, a deposit or a balloon all change the true cost, and the calculator does not include them. To compare offers fairly, ask each lender for the total amount repayable over the term, including every fee, and check whether repayments are monthly in advance or in arrears.
Want to understand the product first? Read our guide to asset & equipment finance.
Flat rate to annual rate calculator: common questions
Why is the annual rate higher than the flat rate?
Because flat-rate interest is worked out on the original amount for the whole term, while your balance falls every month. The equivalent annual rate reflects what you really pay on what you owe.
Is this the same as APR?
It’s similar in spirit but excludes fees. Business lending often isn’t required to quote an APR, so ask each lender for the total amount repayable including all fees.
Where are flat rates used?
Mostly in asset finance and some short-term business lending. Loans are usually quoted as an annual interest rate instead.
Does a longer term change the equivalent annual rate?
Usually only slightly. For a given flat rate, the equivalent annual rate moves a little up or down as the term changes, while the total interest changes much more, because flat-rate interest is charged on the full amount for every year of the term. Try several terms here to see both effects before comparing quotes over different lengths.
How do I convert a flat rate to an APR?
Enter the amount, flat rate and term here to get the equivalent annual rate on a reducing balance. It works out the rate at which a normal amortising loan would have the same monthly repayment. It is not a full APR, because it leaves out fees, so add any fees when comparing total cost.
Is a flat rate always more expensive?
Not necessarily. A flat rate is just a way of quoting interest. A 5% flat rate and a loan at about 9.3% a year can cost the same over 36 months. Problems only arise when a flat rate is compared directly with an annual rate, which makes the flat-rate offer look cheaper than it is.
Why do some lenders quote flat rates?
Flat rates are simple to calculate and explain: interest is a fixed percentage of the amount borrowed for each year of the term. They are traditional in asset finance and some short-term lending. Converting them, or asking for the total amount repayable, puts them on an equal footing with other quotes.
Check in 60 seconds
Get real figures for your company
Checking won’t affect your credit score. No obligation.
- No impact on your credit score
- One request, several lenders: we’re a broker, not a lender
- For UK limited companies, LLPs and partnerships of 4+ partners
- No fee to you: we’re paid by the lender
Step 1 of 3 · about 60 seconds