How the interest rate is found

Given the amount borrowed, the monthly payment and the number of payments, the loan payment formula can be solved for the interest rate. There is no closed-form answer, so the calculator narrows the rate down step by step until the payment matches.

The result is the nominal annual rate (monthly rate × 12). The effective annual rate also includes the effect of monthly compounding. Fees and insurance included in your payment will raise the apparent rate, which makes this tool useful for comparing offers.