# Daily interest vs APR: which is the honest comparison?

*Source: https://credicorp.co.uk/support/daily-interest-vs-apr/*

If you have ever seen an eye-watering APR on a short-term loan and wondered whether it could really be that expensive, you have run into a genuine quirk of how APR works. APR is a useful tool for some products and a misleading one for others. This article explains the difference between daily interest and APR, why APR overstates the cost of very short-term borrowing, and what we show instead.

## What APR is meant to do

APR — the Annual Percentage Rate — is designed to let you compare the cost of credit on a single, standardised, yearly basis. It rolls interest and certain charges into one annualised figure. For products you hold for a year or more — a mortgage, a multi-year loan, a credit card balance carried over time — APR does its job well, because the product genuinely lasts around a year or longer.

## Why APR overstates very short-term borrowing

The problem appears when you take a figure designed for a year and apply it to something that lasts a few weeks. APR **annualises** the cost — it projects what the borrowing would cost if it ran, and compounded, for a whole year. But a short-term bridging loan does not run for a year. It runs for days or weeks and is then repaid.

Consider the shape of it without quoting any rate: a modest amount of interest charged over, say, a few weeks is a small cash sum. Annualise that short period — compound it as if it repeated all year — and the percentage looks enormous, even though the actual pounds you pay are limited and known in advance. The high APR is an artefact of the maths, not a reflection of what leaves your bank account. For a product measured in weeks, an annual percentage is simply the wrong unit. We unpack the concept further in [what APR means on your loan](/support/what-does-apr-mean-on-my-loan/).

## What we show instead

Because our Business Bridging Loan is short-term — **£50 to £500 over 14 to 84 days** — we do not quote a consumer APR, which would distort rather than clarify. Instead we show you the figures that actually tell you what the borrowing costs:

- the **amount borrowed**;

- the **term** (how many days, and how many repayments);

- the **total amount payable** — every pound you will repay in total;

- the **total cost of credit** — the difference between what you borrow and what you repay; and

- a **simple annualised rate**, for a like-for-like reference point, shown without the compounding distortion of APR.

All of this appears on your **Key Information Sheet (KIS)** and again in the **Business Loan Agreement**, alongside the full repayment schedule, before you sign anything. The most honest comparison for short-term borrowing is the total cash cost: look at the total amount payable and the total cost of credit, and you know exactly what you are paying.

## This does not make the loan cheap

Showing the cost honestly is not the same as the cost being low. Short-term unsecured borrowing is expensive relative to a bank facility, and we will not dress that up. The point of showing total cost of credit rather than a distorted APR is so you can see the real number and make a clear-eyed decision — not so the loan looks cheaper than it is. To see how the figures are built up, read our worked example in [how interest is calculated](/support/how-interest-is-calculated-worked-example/).

## How to compare honestly

When you compare short-term options, compare the **total cost in pounds** over the actual period you will borrow, not the headline annual percentages. APR is the right tool for a year-long product and a misleading one for a two-week one. Ask any lender for the total amount payable and the total cost of credit for your exact amount and term — that is the figure that tells you the truth, and it is the figure we put in front of you before you commit.

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Credicorp Limited — UK lender to limited companies (Company No. 16093826). credicorp.co.uk