Why work backward to the rate
Car dealers, furniture stores and some lenders quote a monthly payment instead of a rate. Two offers with similar payments can have very different rates once you account for the term. Enter the amount borrowed, the term and the payment, and this calculator finds the annual rate that matches.
How it's found
There's no direct formula for the rate, so the calculator solves the standard payment formula numerically, trying rates until the payment matches to a fraction of a cent. It also shows the effective annual rate, which accounts for monthly compounding.
The result is the rate on the money you borrowed. If the loan also charges fees, your true cost is higher.
Example
Borrowing $30,000 for 5 years at $600 a month means you're paying about 7.42% interest, and $6,000 in interest over the loan.
Frequently asked questions
Why does the calculator say the rate would be negative?
If your payments add up to less than the amount borrowed, no positive rate fits. Check the loan amount and term.
Is this the same as APR?
It's the interest rate implied by the payment. APR also includes certain loan fees. If you paid fees upfront, enter the amount you actually received to estimate the APR.