Effective Interest Rate Calculator
Find the effective annual interest rate of a loan, including the upfront fee and monthly fees.
An estimate for an annuity loan with equal monthly payments. Lenders may include other costs or use other payment dates, so the rate in your loan offer can differ slightly. General information, not financial advice.
About this tool
Enter the loan amount, the nominal interest rate, the term and the fees. The calculator works out the monthly payment and the effective annual rate — the true yearly cost of the loan with monthly compounding, the upfront (origination) fee and any monthly fee included — plus the rate without fees, the US-style APR and the total cost of the loan.
Frequently asked questions
It expresses everything the loan costs — interest, the upfront fee and monthly fees — as one yearly rate. A loan of 100,000 over 4 years at 4% nominal with a 1,500 upfront fee and a 50 monthly fee has a monthly payment of 2,257.91 plus the fee, and an effective rate of 6.04%.
Because interest is charged every month, and each month’s interest is added before the next. The effective annual rate is (1 + nominal ÷ 12)^12 − 1, so 4% nominal becomes (1 + 0.04 ÷ 12)^12 − 1 = 4.07%. Excel’s EFFECT function does the same: 5.25% compounded quarterly is 5.354% effective.
In the US, the APR under Regulation Z is the rate per period multiplied by the number of periods in a year, so it includes fees but not compounding. In the example above the monthly rate including fees is 0.490%, which gives an APR of 5.88% but an effective annual rate of 6.04%.
A fixed fee is a much larger share of a small loan. With the same 1,500 upfront fee and 50 a month at 4% nominal, a 20,000 loan over 1 year has an effective rate of 27.33%, while a 3,000,000 loan over 25 years at 5% with a 2,500 fee and 50 a month has 5.15% against 5.12% without fees.
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