Interest Rate Calculator
Finance agreements often quote a monthly payment and a term without ever naming a rate. This works backwards from those figures to the rate you are actually being charged — which is the number that makes the offer comparable to anything else.
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Why the rate is not simply interest divided by amount
Pay back 15,000 with 19,200 of payments and the interest is 4,200 — but that is not a 28% rate. You do not owe the full 15,000 for the whole term. The balance falls with every payment, so the rate is charged on a shrinking amount, and the true rate is well below the crude ratio.
Getting from a payment to a rate has no direct formula. The calculation narrows in on it: guess, price the payment that rate would produce, and adjust until it matches.
Where you meet this
Car finance, store credit, furniture and phone instalments, and anything sold as "only 40 a month". A payment and a term sound concrete while telling you nothing about the price. Two offers with the same payment can carry rates ten points apart if the terms differ.
Fees change the answer
A fee paid on the day you sign means you received less than the headline amount while still repaying the whole of it. The rate rises accordingly. Entering the fee here shows what the borrowing costs once that is accounted for, which is close to what the published annual rate is meant to express.
Interest-free is sometimes real, sometimes not
If the payments multiplied by the term come to exactly what you borrowed, the rate is zero and the offer is what it says. When the total exceeds it, there is a rate in there whatever the advertising calls it. This finds it.
Then compare
Once you have the rate, the offer can be set against a bank loan, an overdraft or a credit card on equal terms. That is usually the point at which financing at the till stops looking attractive.
Frequently asked questions
Why can I not just divide the interest by the amount?
Because you do not owe the full amount for the whole term. The balance falls with every payment, so the rate applies to a shrinking sum and the crude ratio overstates it badly.
What if there is no rate quoted anywhere?
That is exactly what this is for. The amount, the payment and the term are enough to determine the rate.
Should I include fees?
Include fees you pay separately at the start. They mean you received less than you are repaying, which raises the effective rate.
The result says zero. Is that right?
If the payments add up to exactly what you borrowed, the credit really is free. Check the total against the amount to confirm.