Effective Interest Rate Calculator
Work out the true annual interest rate on a loan once fees and compounding frequency are included, so you can compare offers on a like-for-like basis.
Your results
The fee-adjusted rate is an approximation showing how an upfront fee raises the effective cost relative to funds actually received.
Calculation breakdown
- Effective annual rate
- (1 + nominal/m)^m − 1
- Fee-adjusted approx.
- based on funds received vs total repaid
Worked example
A 12% nominal rate compounding monthly has an effective annual rate of about 12.68%, and if a $200 fee is charged on a $10,000 loan, the true cost is a little higher again once you account for receiving only $9,800.
Assumptions
- The fee-adjusted rate is a simplified approximation, not a formal comparison rate calculation.
- Assumes interest compounds evenly across the periods entered.
- For an official comparison rate, refer to the lender's disclosure documents.
How this calculator works
This calculator converts a nominal annual interest rate compounded more frequently than yearly into its effective annual rate, and separately shows how an upfront fee raises the effective cost of borrowing over the loan term. Use it alongside advertised comparison rates to sanity-check loan offers.
Frequently asked questions
What is the difference between nominal and effective interest rate?
The nominal rate is the quoted annual rate before compounding is applied; the effective rate accounts for how often interest compounds, which makes the true cost slightly higher for the same nominal rate.
How do fees change the effective rate?
An upfront fee effectively reduces the funds you receive while you still repay based on the full principal, which pushes the true cost of the loan above the nominal interest rate.
Is the comparison rate the same as the effective interest rate?
They are related concepts, but the official comparison rate published by Australian lenders follows a specific regulated formula, while this calculator gives an approximate effective rate for quick comparisons.
Results are estimates only and are not financial, tax, legal or credit advice.