How to compare probate loan rates and other associated costs

Probate loan rates are only one factor to consider when comparing probate loans

When people search for probate loan rates (including executor loans, estate expense loans, beneficiary loans inheritance loans or inheritance advance loans and inheritance tax or IHT loans) they may expect a simple percentage answer. If that were true it would be a simpler process but it can be slightly more complex so an executor or beneficiary considering a probate loan  must be fully aware of probate loan rates and ALL other the potential charges.

In reality, probate loan rates depend on:

• The interest rate
• Whether interest compounds
• Whether fees are added to the loan
• How long probate takes
• Whether early repayment is possible

Small differences in structure can materially change the final amount repaid.

This article explains how different loan structures can dramatically change probate loan rates and illustrates this fact with real numerical examples.

The Core Cost Components

Most executor loans, estate expense loans and IHT loans include some combination of:

• Interest (often rolled up rather than paid monthly)
• Arrangement or facility fees
• Legal fees
• Valuation costs
• Exit or redemption charges

The true probate loan rate is not just the interest rate — it is the total repayment amount.

Example 1: £100,000 IHT Loan at 12% Per Year (Compounded Monthly)

Let’s assume:

• Loan amount: £100,000
• Interest rate: 12% per annum (rate for illustration purposes only and does not necessarily reflect current interest rates) 
• Interest compounded monthly (1% per month)
• No monthly repayments (interest rolled up)

After 12 Months

£100,000 × (1.01)¹²

= £100,000 × 1.1268
= £112,680

Total interest added in one year: £12,680

After 18 Months

£100,000 × (1.01)¹⁸

= £100,000 × 1.1956
= £119,560

Total interest added after 18 months: £19,560

Notice this is not simply 12% × 1.5 years (£18,000) because interest compounds, it becomes higher.

After 24 Months

£100,000 × (1.01)²⁴

= £100,000 × 1.2682
= £126,820

Total interest after two years: £26,820

If probate is delayed from 12 months to 24 months, the additional cost is over £14,000. That difference directly reduces the estate residue or beneficiary entitlement.

Example 2: Adding an Arrangement Fee

Now assume the same loan includes a 2% arrangement fee, added to the loan balance.

Loan: £100,000
Arrangement fee (2%): £2,000
New balance: £102,000

Interest is now charged on £102,000.

After 12 Months

£102,000 × (1.01)¹²

= £102,000 × 1.1268
= £114,934

Total cost after one year: £14,934

That £2,000 fee has effectively cost more because interest is charged on it.

Example 3: Simple Interest vs Compound Interest

Some borrowers assume interest works like this:

12% per year for 18 months = 18% total.

Under simple interest:

£100,000 × (1 + 0.12 × 1.5)
= £100,000 × 1.18
= £118,000

But with monthly compounding (as shown earlier):

The balance after 18 months is £119,560, which is £1,560 more than simple interest and over longer periods, the gap widens further.

Example 4: Comparing to HMRC Interest (Illustrative Rates Only)

If the probate loan required is a IHT Loan it’s important to know that HMRC allows instalment payments for some  Inheritance Tax liabilities, and interest is charged on outstanding balances.

If we assume, purely for illustration, an interest rate of 7.75% per annum (rates change and should always be checked):

For 18 months under simple interest:

£100,000 × (1 + 0.0775 × 1.5)
= £100,000 × 1.11625
= £111,625

Compared to a 12% compounded commercial loan at 18 months (£119,560), the difference would be almost £8,000.

This does not mean HMRC instalments are always preferable but it clearly illustrates why cost comparison matters.

Probate Loan Rates, APR and Why It Can Be Misleading

APR (Annual Percentage Rate) is designed to show the yearly cost of borrowing including certain fees.

However:

• Probate loans are often short-term
• Fees may be front-loaded
• Interest compounds
• Repayment is a lump sum

APR can therefore appear high, especially if calculated over a short duration.

It is more helpful to ask:

• “How much will I owe in pounds after 6 months?”
• “How much after 12 months?”
• “How much after 18 months?”

Absolute repayment figures are clearer than percentages alone.

Other Costs to Look For

In addition to interest, check for:

• Solicitors costs for probate (who appoints the solicitor?)
• Property valuation fees
• Minimum interest periods
• Early repayment penalties
• Broker commissions built into pricing
• Exit administration charges

Even if a loan is repaid early, some agreements require a minimum interest period (for example, three or six months).

What the FCA Expects

The Probate Network strongly recommends only dealing with regulated probate finance providers. Where probate lending falls within Financial Conduct Authority (FCA) regulation, firms must:

• Clearly disclose all charges
• Explain how interest accrues
• Avoid misleading cost illustrations
• Provide documentation in plain English

If costs are unclear or overly complex, it’s a warning sign and it’s important to considered the credibility of the lender.

You can verify authorisation  of any firm by checking directly on the FCA register.

The Impact Of Loan Length

The key variable in probate finance is time.  The examples above clearly illustrate the difference between interest payments over 12 ,18 and 24 months. With probate loans, this can make accurately calculating the total loan repayment at the time of taking out the loan impossible because the probate completion date can be unpredictable.

Delays in the probate application, delays in property sales, HMRC queries, disputes between beneficiaries are just some common causes of probate delays.

Delays, can materially increase the final repayment amount so modelling different scenarios is advisable.

Questions to Ask Before Signing

• What is the total repayment in pounds at 6, 12 and 18 months?
• Is interest compounded? How often?
• Are fees added to the loan balance?
• Is there a minimum interest period?
• What happens if probate is delayed?
• Is the product FCA regulated?

Clear answers should be provided in writing so it’s easier to compare loans from different providers.

Are Probate Loans A Good Idea

Probate loans are a popular product amongst executors and administrators but like any financial undertaking, the decision needs to be informed and reviewed against all pro’s and con’s.

Executor loans, estate expense loans and IHT loans can help address liquidity gaps during probate but their cost structure is very different from traditional borrowing. Probate loan rates can be higher than traditional loans but they serve a particular purpose and can offer a solution that main stream lenders don’t offer. They fit for some circumstances and not all which is why it’s crucial to research the market thoroughly to assure the loan taken, is the most appropriate. 

Compound interest, arrangement fees and probate delays can significantly affect the final amount repaid.

Understanding all the numbers and not just the probate loan headline rate, is essential before entering into any probate finance arrangement.

The Probate Network does not promote or recommend specific lenders however by completing the form below you can receive a comparison proposal from up to three verified and regulated probate loan providers.

When you receive your loan proposals it is advisable to read alongside: Loans Against Probate: How to Compare Probate Loan Providers. 

Careful comparison and regulatory verification can help protect estate value and beneficiary entitlements.