Flat Rate vs APR Explained
April 8, 2026
Why do banks advertise low rates?
When you see a bank ad saying "personal loan at 1.9%", that's the flat rate. It looks low but is very different from the Annual Percentage Rate (APR).
Flat Rate
Calculated on the original principal for every year of the loan — even after you've paid half of it back. Example:
SAR 100,000 loan × 1.9% × 5 years = SAR 9,500 total interest
APR (Annual Percentage Rate)
Calculated on the remaining balance only. As you pay down the loan, the interest decreases. This is the method used for mortgages.
Rule of Thumb
APR ≈ Flat Rate × 1.85
So a 1.9% flat rate ≈ 3.5% APR equivalent.
When is each used?
- Personal loans: Advertised as flat rate (the smaller number)
- Mortgages: Advertised as APR (the larger number)