How to calculate a business loan, interest vs APR, fees, and total repayable
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How to Calculate a Business Loan: Understanding Interest, APR and Fees
Understanding the true cost of a business loan in the UK means looking beyond simple interest rates. Whether you are seeking funding for growth, working capital or refinancing, it’s crucial to compare not just rates, but all compulsory fees and the total repayable. This guide sets out the maths, typical UK charges and practical tips, so you can shop with confidence and avoid hidden costs.
Interest Rate vs APR: What’s the Real Cost?
The interest rate describes the percentage you pay a lender on the amount borrowed. However, the Annual Percentage Rate (APR) paints a truer picture for comparing loans, as it combines the interest rate and compulsory fees to express the yearly cost of taking out a loan. APR is especially valuable because not all lenders structure their fees in the same way, so comparing APRs helps level the playing field.
For a detailed dive into APR and how to compare different loan types, see this explanation of APR and fees.
| Feature | Interest Rate | APR | Fees | Total Repayable |
|---|---|---|---|---|
| What it Measures | Cost to borrow (just interest) | All-in yearly cost (interest + compulsory fees) | Compulsory/optional charges by lender | Sum of all repayments (interest + fees + principal) |
| Helps With | Estimating monthly payments only | Comparing loan offers fairly | Spotting extra costs | Budgeting for the life of the loan |
| What’s Included | Simple interest | Interest + upfront/compulsory fees | Arrangement, early repayment, late fees etc | All interest, all fees, entire principal |
Common UK Business Loan Fees: What to Watch For
Lenders may charge a range of fees in addition to headline interest rates. The most frequent are arrangement (or origination) fees, usually expressed as a percentage of the loan or a flat fee. These might be added to your loan balance or deducted from the advance. Many UK lenders also have early repayment charges if you settle early, late payment penalties, and less common charges like disbursement or service fees. Always examine the loan’s Key Facts or Fees document to hunt for any non-standard costs.
For a deep dive on arrangement fees and how they work, visit Funding Agent’s arrangement fees overview. You can also check recent real-world lender reviews, such as Kriya business loan fees and OnDeck loan costs.
How to Calculate Your Loan: Worked Example
To assess the true cost of a business loan, add the total interest payable (which depends on the rate, the amount borrowed and the term length) and all applicable fees, then compare the sum with your cash flow and plans.
- Start by checking both the interest rate and APR.
- Identify all fees (arrangement, early repayment, service etc).
- Multiply the monthly payment by the total number of payments to get the full amount repayable.
Try using Funding Agent’s online business loan calculator or the unsecured business loan calculator for a quick illustration using real figures.
Example: SME Term Loan Calculation
Assumptions: You borrow £50,000 at a fixed 9% interest rate over 3 years (36 months). The lender charges a 2% arrangement fee.
- Arrangement fee: £50,000 x 2% = £1,000 (pays this upfront or adds to loan).
- Interest: Using a standard amortisation approach, you repay gradually. Monthly payment for a 3-year, £50,000 loan at 9% APR ≈ £1,592.19 (use a calculator for precision).
- Total of 36 payments: £1,592.19 x 36 = £57,318.84
- Total repayable: £57,318.84 + £1,000 = £58,318.84
Always confirm the breakdown with your lender and check whether fees are added to your repayments or must be paid upfront. If you repay early, you may save interest, but some lenders will add a settlement fee – always request a redemption quote before settling ahead of schedule.
If you want to estimate repayments for different terms or amounts, use the business loan calculator tool for tailored numbers or try the business loan refinance calculator if you’re looking to switch lenders.
Impact of Early Repayment and Repayment Schedules
Paying off a business loan early can reduce your interest cost as you clear the principal sooner. However, some UK lenders apply an early repayment or settlement charge. It’s important to review your contract for these fees, which may be either a fixed amount or a percentage of the outstanding balance. Whether you save significant interest depends on whether interest is calculated on a flat or reducing basis. For a full explanation, see early repayment penalty guidance and review what repayment means in business lending.
If you want flexibility, compare products that allow early part-settlement without added penalties. Request a redemption statement from your lender before repaying.
Choosing and Comparing Business Loans: Practical Steps
To make an objective loan comparison, review:
- The APR for true yearly cost
- Any and all fees, including hidden charges
- The total repayable versus just the monthly instalment
- Whether you can repay early, and at what cost
- Speed and process for funding (some lenders release funds in one business day, others take longer)
Every lender will specify what information is needed in your application – typical requirements include proof of UK trading, bank statements, any existing debts, and details of directors or owners. It is always wise to check a lender’s status on the FCA register, especially if approached by an unfamiliar broker. To discover leading lenders and how to compare them, refer to the fastest UK business loans comparison guide or read up on lender approval rates.
Next Step: Make Your Loan Work for Your Business
Calculating the cost of a business loan does not have to be daunting. By weighing up interest, APR, all fees and speed to funding, you can make an informed decision tailored to your business’s cash flow. Use one of Funding Agent’s loan calculators and funding tools for a practical starting point, or speak with your preferred lender for a personalised breakdown. If in doubt, ask for the Key Facts or summary document and review the fine print on fees before committing.
