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What it means
A nominal rate is the stated annual percentage; the effective rate adjusts it for how often interest compounds and, in broader use, for fees. Because interest charged monthly compounds through the year, the effective rate exceeds the nominal one. It is close in spirit to APR, which rolls fees in too.
What this means for your company
When you compare offers, the effective rate (or total repayable) is what counts — a lower nominal rate with monthly compounding and fees can cost more than a higher-looking simple rate. Use the true-cost calculator to level the field, and always ask for the total pounds repayable so no compounding or fee is hidden from you.
What it means for you
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.
Frequently asked questions
Is the effective rate the same as APR?
They are close. APR is a standardised figure that includes compulsory fees; the effective rate primarily reflects compounding. Both aim to show the true annual cost, which is why either beats a bare nominal rate for comparison.
Why is my effective rate higher than the quoted rate?
Because interest compounds over the year and fees add to the cost. A 1% monthly rate is not 12% a year once compounding is included — it is slightly higher. Always compare on effective or total repayable.
Related reading
What does APR mean for a business loan?
APR is the annual percentage rate — the yearly cost of borrowing including compulsory fees, expressed as one…
Read →What is a representative APR and why might my rate differ?
A representative APR is the rate at least 51% of accepted customers get — your own rate may be higher or…
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How do I work out the total repayable?
Total repayable is the sum of every payment you will make over the life of the facility — principal,…
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Can my interest rate change during the loan?
On a fixed rate it can't; on a variable rate it moves with the base rate; and some agreements reserve a…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.