Calculate a loan’s effective interest rate
Enter loan details, fees and costs to see the effective interest rate and income by year.
Effective interest rate
The loan starts at €9,850.00, and at 13.05% its payments equal that amount.
Interest income €2,107.15 is the contractual interest €1,957.15 plus €150.00 of fees less costs.
Interest by year
The gap between bars is the fees and costs spread that year.
Amortisation schedule
| Year | Opening cost | Cash received | Contractual interest | Interest income | Fees and costs spread | Closing cost |
|---|---|---|---|---|---|---|
| 1 | €9,850.00 | €3,985.72 | €1,041.56 | €1,118.31 | €76.74 | €6,982.59 |
| 2 | €6,982.59 | €3,985.72 | €668.17 | €720.76 | €52.59 | €3,717.63 |
| 3 | €3,717.63 | €3,985.72 | €247.42 | €268.09 | €20.67 | €0.00 |
| Total | €11,957.15 | €1,957.15 | €2,107.15 | €150.00 |
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View formulas
Amortised cost = Amount lent − Fees charged + Costs paid to make loan Amortised cost = Σ Cash receivedₘ ÷ (1 + i)ᵐ, m = 1 … Term (Monthly rate that balances payments) Effective interest rate = 12 × i Annual effective rate = (1 + i)¹² − 1 Interest income = Opening cost × i (Each month) Closing cost = Opening cost + Interest income − Cash received Fees and costs spread = Interest income − Contractual interest
No prepayments or defaults, and the rate stays the same.
Calculate a loan’s effective interest rate
The effective interest rate is the rate at which a loan’s contractual payments equal its amortised cost on the first day. The calculation includes fees charged to the borrower and costs paid to make the loan.
The rate spreads fees and costs over the life of the loan as interest income. The yearly schedule shows that income alongside contractual interest and amortised cost.
Common questions
How do I calculate a loan’s effective interest rate?
The rate is the monthly rate that makes the contractual payments equal the loan’s amortised cost on the first day. This calculator works it out from the loan, fees and costs.
How is the effective interest rate calculated under IFRS 9?
The effective interest method comes from IFRS 9. This calculator finds the rate at which the loan’s contractual payments equal its first-day amortised cost.
How do loan fees and transaction costs affect the effective rate?
Fees charged to the borrower and costs paid to make the loan affect its first-day amortised cost. The effective rate spreads their difference over the loan’s life.
What does amortised cost mean for a loan?
For this calculation, first-day amortised cost is the amount lent less fees charged plus costs paid. The yearly schedule also shows amortised cost at the start and end of each year.
How does the effective rate differ from the contractual rate?
The contractual rate determines the loan’s contractual interest and payments. The effective rate also reflects fees and costs spread over the loan’s life.