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What is the difference between APR and Flat Rate when looking for car finance?

APR and Flat Rate interest are quite different things. When you're looking for car finance, make sure you know the differences...

Words by: First published: 28th September 2018
You should shop around for car finance just as much as you shop around for your next car. And when you're looking for car finance, you may come across 'APR' and 'flat' interest rates. They're quite different things.

Some lenders may quote you the Flat Rate interest, which will be less than the APR (Annual Percentage Rate). The Flat Rate interest is the percentage of interest charged on the initial loan amount of every year you have the loan for.

With a Flat Rate, the interest is charged on the original amount of money you borrowed, and doesn't take into account what has been repaid.

The APR however, takes into account the various extra costs and fees – such as insurance, administration charges and so on – that are involved in the loan on top of the interest. You also only pay interest on the remaining amount.

A Flat Rate agreement might look cheaper because the percentage is lower, but because the interest is charged on the original amount borrowed, it's possible it won't be, and you might end up paying more.

It's also illegal for a consumer credit agreement not to have the APR rate on it, so do check this, and make sure you're comparing like for like.

We've got loads more information on all the terms you might come across while looking to finance your next car.
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