Novice APR question

Hi Can anyone explain to me what the term 'Flat' means, with regards to interest rates.

I see that some interest rates are quoted at 3% Flat, or 6% APR. I understand APR, but don't know what 'Flat' means...

Also, on this site

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there are rates quoted at 4.54%, but 6.7% APR. Can anyone explain?

Thanks

Reply to
Paul Aspinall
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Suppose you borrow £1200 and pay it off over the course of 12 months, with each monthly payment being £103. The total you pay will thus be 3% more than you borrowed. That's an example of a 3% flat rate.

But APR is a "more genuine" interest rate because it takes account of how long you borrow chunks of the money for. In the above example, you aren't borrowing £1200 for the whole year, but only for the first month. Then, during month 2, you only still owe roughly £1100, and each month you own about £100 less. On average, therefore, over the course of the year, you will have owed a bit more than half what you originally borrowed, and this explains why the APR is usually about twice the flat rate.

Look closely at the column headings. The first rate is an "initial rate" which applies during the discounted period. The APR, however, is averaged over the whole loan period, with mortgages this is usually assumed to be 25 years.

Reply to
Ronald Raygun

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