Interest rates - Flat/Rate/APR ???

It largely depends upon the period (eg monthly, annually) it's measured over; that needs to be consistent before you can easily compare.

(it looks like 4.85% is for half a year to get to 9.9% annual percentage rate (APR)) - (( ((1+(4.85/100)) ^ 2) - 1) * 100)

It's a FAQ; start here

Daytona

I got caught out a couple of years ago buying a new car. The salesman asked about finance, so I said not to worry I could get a personal loan at 9.9% (APR). He went away and said they could offer me a loan at 7.5%, so I took their offer but failed to read the small print. I wan't until sometime later I found out that this was 7.5% flat rate, worked out at around 15% APR.

I will never trust a car salesman again...and yes that was meant to be ironic.

"Steve Pearce" wrote

Similar thing happened to me:

Car finance chappy said "do you want a loan" - I said "only if you can beat my (flexible) mortgage rate of (4.5%)" (can't remember exact figure now, but that's about right). He said "we'll do (3.9%) flat" (again, can't remember exact figure, but differential is roughly right).

I said "don't be daft - that's more than my 4.5% (APR) on mortgage" and ensued a heated "discussion" where he tried (unsuccessfully) to convince me that 3.9% flat was actually better than 4.5% APR. Silly man!

Some do, and some don't, take account of compounding, or of the effect of scheduled payments.

Examples of flat rates:

You borrow £1000 at 8% flat, so the total interest charge is £80. You borrow it over one year, making 12 monthly repayments of £90. Twelve times £90 comes to £1080.

You borrow the same £1000 at 8% flat per year over 3 years. So the total interest charge is £240. You make 36 monthly payments of £1240/36 (£34.44).

Well, the flat rate would be the "actual" rate if you had the use of the whole borrowed sum for the entire period. You borrow £1000 at 8% for a year, and you make one single lump sum payment of £1080 after 12 months.

The problem with monthly payments is that you really only have use of the full sum for the first month, and then it gets less and less as the term goes on. In effect, averaged over the term, you owe only about half the money, and therefore the flat rate is in effect really roughly twice the actual rate.

The APR is, or tries to be as far as possible, the actual rate. It does this by taking into account the timing of all the payments you make.

The 4.85 is the old way of quoting a 'flat' rate and it is 4.85% of the original amount borrowed at the outset per year, so if you borrowed a quid for two years you would have to repay £1.097 in 24ths i.e. 4.57p per month. This gives an APR of about 9.9 (ish). It takes no account of the reducing balance and quoting it SHOULD be illegal but I know lots of car dealers still do it.