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
Overpayment = total of all installment payments − cash price. Effective annual rate = ((total payments ÷ cash price)^(12 ÷ term in months) − 1) × 100% — the same annualizing logic as effective investment return, just applied to an overpayment instead of a gain.
An 'interest-free' installment plan may formally carry no stated rate, but in practice the seller almost always folds the cost of financing into the item's price itself — the overpayment is usually exactly that hidden cost, just not labeled as interest. Comparing the cash price to the installment total reveals it directly.
If the cash price and the installment total match, both overpayment and the effective rate are zero — that's a genuinely interest-free plan, fully funded by the seller or a partner bank with no markup on the item.