Commercial Loans UK - How To Work Out The Rate Per Thousand Cost of Your UK Loan
When you are acquiring business assets on finance, you may come across the term 'rate per thousand'. This is the rate used to calculate your payments based on the invoice value of the business equipment you are purchasing on finance.
A rate per thousand can be applied on any term, ie 3, 4, or 5 year, and also on different profiles, ie 3+33 (3 months deposit, then 33 payments), 3+45, 3+57 and so on. Don't be fooled by a cheaper rate per thousand based on a 3+ profile though - because you are putting down the equivalent of 3 payments in advance this is factored into the rate per thousand and therefore can make the rate look cheaper than a straightforward 1+35 profile where there is no deposit required.
A rate per thousand is commonly known as the rate paid per £1000 borrowed. For example, a loan for £1,000 calculated at a rate per thousand of £33 over a 36 month term, means that for the £1,000 you borrow you are paying back £33 per month. You then simply multiply this by the amount fo '000s you are borrowing, or for an even easier way simply multiply the invoice value by the rate per thousand and then divide this figure by 1,000 to return the actual monthly figure. ie - £4,500 x 33 / 1000 = monthly rental of £148.50 (based on an invoice of £4,500)
This easiest way to calculate the total cost is then to multiply the monthly payment by the full term, ie £33 x 36 months, so the total you are paying for £1,000 based on £33 per month is £1188, the interest element being £188 in total. However you also need to allow for tax deductions if it is a lease rental, see my other articles that calculate how much tax you can offset against this.
So if you are buying a bit of equipment of £25,000 over 3 years and the monthly payment quoted to you is £850, you can actually work it back to reveal the rate per thousand used - simply take the monthly payment amount quoted £850, and divide it by the invoice value £25,000 then multiply it by 1,000. That should give you a figure of 34.00 - this means the rate per thousand charged is £34 in this instance. You can then use this information in an attempt to get the cost down further from your broker because you know the rate used. Other brokers many then be able to beat the rpk for you depending on the credit of your business and therefore you end up saving further money through lower interest charges.