How to use this calculator
- Enter the Loan amount you receive.
- Enter the Monthly payment and the Loan term in months.
- Read the Interest rate (APR) and the Effective annual rate.
- Check the Total interest, then compare the rate with other offers.
How the rate is found
The payment of a standard loan is a known function of the amount, the monthly rate and the number of months. There is no simple formula to turn that around, so the calculator searches for the monthly rate at which equal payments exactly repay the loan, a numerical method similar to the one used for the internal rate of return.
L = M · (1 − (1 + r)^−n) / r → solve for r- L = loan amount you received
- M = monthly payment
- n = number of monthly payments
- r = monthly interest rate; APR = r × 12
- Effective annual rate = (1 + r)^12 − 1
The monthly rate is multiplied by 12 to give the nominal annual rate (the APR), and compounded over 12 months to give the effective annual rate.
Example: $20,000 paid back at $420 for 60 months
You pay $420 × 60 = $25,200, so total interest is $5,200. Solving for the rate gives an APR of 9.5%, and compounding monthly gives an effective annual rate of 9.92%.
If the payment were $500 instead, the total interest would be $10,000 and the rate would jump to 17.27% APR, or 18.71% effective. A modest-looking difference in payment can mean a very different loan.
When to use it
Use it when a lender or dealer quotes only a monthly payment, when you want to check a flat-rate or add-on quote, or when you are reviewing an existing loan and cannot find its rate. For a flat-rate loan, the flat rate loan calculator shows the same conversion directly.
Be sure the amount is what you actually receive. If fees are taken out of the loan, the true rate is higher, which you can check with the APR calculator.
How to use the result
Compare the rate with other offers and with your own alternatives, such as a refinance or a balance transfer. If your rate is far above what you could get elsewhere, a lower-rate loan could cut the cost.
Also check that the number makes sense: a rate far higher than expected can mean extra charges are bundled into the payment, such as insurance or fees.
Common mistakes
- Using the price of the item instead of the amount borrowed, ignoring the down payment.
- Leaving out fees that are financed in the loan, which makes the rate look lower than it is.
- Confusing the nominal APR with the effective annual rate, which is slightly higher with monthly compounding.
- Using a payment that includes taxes and insurance, as a mortgage escrow payment does.
Assumptions and limits
The calculator assumes equal monthly payments on a fully repaid loan with interest compounding monthly. It does not handle balloon payments, irregular payments, variable rates, deferred starts or interest-only periods.
If the payments total no more than the amount borrowed, the loan carries no interest and no rate is shown. Confirm the rate in your loan agreement.
Frequently asked questions
How do I calculate the interest rate on a loan?
Enter the amount borrowed, the monthly payment and the number of payments. The calculator finds the rate at which those payments repay the loan.
What is the difference between APR and the effective annual rate?
APR is the monthly rate times 12. The effective annual rate includes monthly compounding, so it is slightly higher.
Why is my rate higher than the one I was quoted?
Fees, insurance or add-on products may be included in the payment, or the quote may have been a flat rate. Ask the lender for the APR and an itemized breakdown.
Can I use it for a car loan or personal loan?
Yes, for any fixed-payment loan. For mortgages, enter only principal and interest, without taxes and insurance.