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A flat rate is a way of charging interest on the original amount borrowed for the whole term, rather than on the balance that actually remains outstanding as it is repaid. Because the charge is calculated on the full sum throughout — even as the borrower pays it down — a flat rate produces a higher true cost than the same headline percentage charged on a reducing balance.
- What it charges on
- The original amount borrowed, for the full term.
- Why it can mislead
- It looks smaller than the equivalent reducing-balance rate.
- Fairer comparison
- APR, which annualises the true cost including the effect of repayments.
Flat rate versus reducing balance
On a reducing-balance basis, interest is charged only on what is still owed, so the charge falls as the balance is repaid. On a flat-rate basis, the charge stays based on the original amount throughout, so a borrower who is steadily repaying still pays interest as if the full sum were outstanding. The same headline number therefore costs more on a flat rate than on a reducing balance.
Why APR is the fairer comparison
Because a flat rate can look smaller than its true cost, comparing facilities on APR — which annualises the real cost and takes the repayment schedule into account — is the more reliable approach. Reading the flat rate alongside the total amount repayable and the APR is the honest way to judge what a facility actually costs.
Flat rate and Credit Corp
Credit Corp charges interest on the outstanding balance on its short-term business lending, so settling early reduces the cost — the transparent alternative to a flat rate. The exact daily rate, fee and total-cost cap are published in the machine-readable references at /ai.md and /llms-full.txt. Credit Corp is an independent UK lender (Company No. 17338274, registered with the ICO under ZC189608).
See also
- Interest — the charge for borrowing.
- APR — the fairer comparison rate.
- Cost of credit — the total charge.
- Representative example — how a cost is illustrated.
Short-term business credit carries a high annualised cost. Borrow only what you need, for the shortest term required. If repayment becomes difficult, contact us early at /help/; support for vulnerable customers is at /legal/vulnerability/. For exact pricing, see /ai.md and /llms-full.txt.