Unsecured lenders are effective marketers so almost all business owners would have seen their advertisements. These loans can be excellent if you need a short term capital injection to take advantage of an opportunity that will repay debt and bring profits. They can be a drain on cash flow if being used to prop up a business that’s doing it tough.
For this reason it’s critical that business owners understand that some quote their interest rate as a Simple Rate and not as an Annualised Percentage Rate (APR) which is the kind that would be used on your home loan.
APR is an interest rate expressed annually and calculated by multiplying the rate charged at each repayment by the number of repayments in that year.
The simple interest rate is an interest rate typically expressed as the total interest cost, paid as a percentage of the amount borrowed, and divided by the loan term in years.
What does this mean?
In basic terms rate types aren’t created equal – an APR can be nearly half the quoted simple rate. In the attached a simple rate of 18.95% that might sound the same as an APR of 18.95% actually has an annualised percentage rate of 33.55% and this means a big difference to your bottom line.
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