Interest in advance vs arrears: why the timing

2 min read

In advancePay before use, costs more

In arrearsPay after use, standard

Small but realCheck the terms

Amount borrowed (£)

Arrangement & other fees (£)

Annual interest rate (%)

Term (months)

Estimates an annualised cost including fees so you can compare offers like-for-like. Illustrative, not a statutory APR.

The timing difference

Interest in advance is taken at the start of a period; interest in arrears at the end. Because money has time value, paying sooner (in advance) costs more for the same nominal rate.

Where it matters most

On a long term loan the effect is modest. On short, repeated facilities — leases, some bridging, frequent drawdowns — advance charging can noticeably raise the effective rate.

What to check

The agreement will state whether interest is charged in advance or arrears. If in advance, factor the slightly higher effective cost when comparing with an arrears facility at the same headline rate.

Compare on effective cost

Put both facilities on an effective annual basis before choosing. The calculator below helps you see the cost of a balance over a period.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See interest in arrears and effective annual rate.

Frequently asked questions

Is interest in advance always worse?

For the same nominal rate, yes, slightly — you part with money sooner. The size of the effect depends on how short and how frequent the periods are.

Which is standard for business loans?

Interest in arrears is the usual basis. Some leases and short facilities charge in advance, so check the agreement.

How do I compare the two fairly?

Convert both to an effective annual rate or total cost. Do not compare an advance-charged facility with an arrears one on headline rate alone.

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