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How to work out a flat rate or APR on your loan using a rate per thousand
| Guest post by: Al Shea |
Article Overview: This article gives a simple calculation for working out the APR or flat rate on a commercial loan using only the rate per thousand.
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How to work out a flat rate or APR on your loan using a rate per thousand
If you have a business finance agreement you may have been quoted a rate per thousand relating to the cost of borrowing. A rate per thousand is simply the rate it costs to borrow £1,000 over the agreed term. For example if you borrowed £1,000 over 3 years, the typical rate per thousance could be £35 - this means that you will be paying £35 per month for a minimum of 36 months. If you were to borrow £5,000, the calculation would be £5000 x 35 (divide by 1000) = £175 per month over a min of 36 months.
Rate per thousands are often used for lease rentals where you don't actually own the equipment - you are simply renting the equipment from the funder therefore never take ownership, and as such an APR doesn't necessarily apply in that circumstance, you can however apply a flat rate in those instances if required, although rate per thousands are the norm. APRs are generally applied to commercial loans and similar where you actually take ownership of the asset after completing your financial obligations.
To work out a flat rate based on a rate per thousand, apply the following calculation:
Rate per thousand (ie 35) x number of payments (ie 36)
Minus 1000
Divide by number of years (ie 3)
Divide by 10
This will return you an approximate flat rate figure. If you want to calculate an APR, multiply this figure by 2.
This calculation should only be used as an approximate guide, if you wish to calculate an exact flat rate or APR you should consult your funder or broker to request that exact information from them.
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