g Police tt Interestratefixedmortgage n Interestratefixedmortgage C Police s Tag If the three little letters A, P and R don't follow the rate of a personal or car loan… danger! APRs automatically mean the rate is charged on any outstanding debt. Borrow £5,000 over 5 years and by the last year you only pay interest on the amount remaining, say £1,000. At 6% APR the total interest is £800.
With a flat rate the interest is charged on the original amount borrowed, no matter what's been repaid, so in the last year you still pay interest on the whole £5,000. With a 6% flat rate, the total interest is £1,500.
Hence 6% sounds cheap but is roughly equivalent to a costly 12% APR, so if in doubt ask "what's the total I'll repay including all charges?”
See the Cheap Loans guide for more information.
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