Effective Interest Rate Calculator

Instructions:
  • Enter the Principal Amount, Annual Interest Rate, and Number of Periods (months).
  • Click "Calculate" to calculate the Effective Interest Rate.
  • Click "Clear" to reset the input fields and results.
  • Click "Copy Results" to copy the calculated Effective Interest Rate to the clipboard.
Calculation History

The Effective Interest Rate (EIR) Calculator is a financial tool that helps calculate the true cost of borrowing or the actual return on investment. It is a useful tool for individuals and businesses alike to make informed financial decisions. The EIR considers the compounding of interest, which is not reflected in the nominal or stated interest rate.

Concepts

The EIR measures the true cost of borrowing or the actual return on investment. It is calculated by taking into account the compounding of interest. The lender or the financial institution quotes the nominal or stated interest rate. It is the rate at which interest is charged or paid without considering the compounding of interest. The EIR is always higher than the nominal or stated interest rate because it considers the compounding of interest.

Formulae

The formula for calculating the EIR is as follows:

EIR = (1 + r/n)^n – 1

Where:

  • EIR is the effective interest rate
  • r is the nominal or stated interest rate
  • n is the number of compounding periods per year

For example, if the nominal interest rate is 10% and the compounding period is monthly, then the EIR can be calculated as follows:

EIR = (1 + 0.1/12)^12 – 1 = 0.1047 or 10.47%

Benefits

The EIR Calculator has several benefits, including:

  • Helps borrowers and investors make informed financial decisions
  • Provides a more accurate measure of the true cost of borrowing or the actual return on investment
  • Helps compare different loan or investment options
  • Helps identify the best loan or investment option based on the EIR

Interesting Facts

  • The EIR is also known as the Annual Percentage Rate (APR) or the Effective Annual Rate (EAR).
  • The EIR is always higher than the nominal or stated interest rate because it considers the compounding of interest.
  • The EIR calculates the true cost of borrowing or the actual return on investment.

Last Updated : 13 February, 2024

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