Result
Effective annual rate
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Effective rate = (1 + nominal rate ÷ 100 ÷ periods per year)^(periods per year) − 1, times 100%. It's the same math as a deposit's effective rate or compound interest's effective rate — just applied to the cost of borrowed money instead of a return.
The more often interest compounds at the same nominal rate, the higher the effective rate: interest starts accruing on interest already charged within the year. The gap between nominal and effective rate is especially noticeable at high rates and frequent compounding.
This calculation only accounts for compounding and doesn't include extra fees, insurance or other loan charges — for the full cost of a loan including all payments, check the real cost of installment payments or the loan's official all-in rate (APR) in the contract.