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Effective Interest Rate Calculator

Online Effective Interest Rate Calculator helps you to calculate the effective interest rate per period given the nominal interest rate per period and the number of compounding intervals per period.

% per year
% per Month
% per Year

What is Effective Interest Rate?

The Effective Interest Rate, also identified as Annual equivalent rate, effective annual interest rate, and simply effective interest rate, is an interest rate on a specific loan or financial goods restated from the nominal interest rate and showed as the equivalent interest rate in case of the compound interest was payable annually in arrears.

In other words, it is an annual rate that reflects the effect of compounding in a year and results in the future value of the money as compounding at a periodic rate multiple times in a year.

For calculating the Effective Interest Rate, one has to implement the formulae and understand the entire process for doing the same. To manually find the Effective Interest Rate, one has to use the following formulae given below.

The effective period interest rate is equivalent to the nominal annual interest rate divided by the number of periods per year n:

Effective Period Rate = Nominal Annual Rate / n

However, to simplify the whole process, one can help with this excellent tool called Effective Interest Rate Calculator.

This amazing Effective Interest Rate Calculator will find your loan's effective interest rate or savings in a single second. The tool will do everything that will save you from all the manual hassles.

How to Use Effective Interest Rate Calculator?

Why burden yourself with all those manual calculations if you are just a click away from finding the answer? This Effective Interest Rate Calculator will do everything in a blink, for which you might require an hour or so if you're not an expert.

Using this scientific calculator can save you a lot. However, it's crucial to understand how it works and how one can use it. Therefore, given are the steps to follow to use this exciting yet advantageous Effective Interest Rate Calculator.

  • First of all, add the nominal annual interest rate in the given space.

  • Now from the drop-down list, choose the compounding period.

  • In the next section, enter the compounding periods per year.

  • Tap on Calculate.

After following the mentioned steps above, you will be able to get the effective period interest rate and the effective annual interest rate. If you want to give it one more try, you can press reset and choose the given fields' options as per your requirements.

Example of Effective Interest Rate:

Let us now understand how to implement Effective Interest Rate on a loan with a help of an example. Below is the given example for your reference-

If we calculate the effective annual interest rate of a credit card with a yearly rate of 36% and interest charged monthly:

  1. Stated interest rate: 36%

  2. Number of compounding periods: 12

Hence, The Effective Interest Rate will be = (1+0.36/12)^12 – 1 = 0.4257 or 42.57%.

Usage of Effective Interest Rate Calculator:

Effective Interest Rate is the only one that mainly caters to compounding periods during any payment plan. The main usage of this formulae is to compare the annual interest between the loan and various compounding periods such as month, year, week, etc., and to ease this whole process, one can promptly use the Effective Interest Rate Calculator that can simplify your calculations.

Conclusion:

This tool called Effective Interest Rate Calculator is indeed an astonishing tool one can use for various calculations of calculating the Effective Interest Rate on loan. The tool is not just an easy-to-use tool but is also a free-of-cost one.