Understanding and calculating credit interest rates

Banks charge interest for the provision of credit. There is a distinction between two interest rates, namely the debit or. Nominal interest rate and the effective interest rate, distinguished. The interest rate corresponds to the cost of the money borrowed.

The nominal interest rate describes the pure cost of borrowing the money. The effective interest rate takes into account all additional costs and thus indicates the total cost of the loan.

Analogous to this is the picture when a rental car is borrowed. The pure rent of the car is more or less equal to the nominal interest rate. Should additional services be added, the total costs would be the analogy to the effective annual interest rate.

Debit interest rate/nominal interest rate

With the debit interest rate (also called nominal interest rate or. Loan interest rate called) is a loan (personal loans, instant loans, car loans, etc) given to the borrower.) interest. The calculation is based on the net loan amount. The debit interest rate is contractually agreed and is expressed as a percentage and based on one year (p.A. = per annum) is specified.

The amount is based on current market interest rates. Unlike APR, nominal interest rate is only a cost component of a loan and does not indicate the actual cost of the loan. The comparison of individual credit offers is therefore based on the APR, which takes into account all ancillary credit costs.

Effective rate

A friendly man in a suit sits at a desk in front of documents and a laptop and calculates something with a calculator

Unlike the nominal or. Debit interest rate gives the APR in addition to the interest all other costs (processing fees, administrative fees, commitment fees, etc.) to. Any brokerage costs must also be included in the effective interest rate.

The APR is always expressed as a percentage and shows the consumer the actual cost of financing a loan, so he can objectively compare it with the effective interest rates of other offers. According to the german price indication ordinance (pangv) and the EU consumer credit directive (EU-CRC), the borrower must be informed of the APR and how it is calculated.

In the following we go through the calculations for a used car. Of course, there is much more to consider when buying a car than just the interest rate amount. That's why we've set up a separate guide category where you'll find all kinds of tips, tricks and checklists:

Calculation of interest rates

The formula for calculating the APR is:

APR = (interest cost * 100) / (net loan amount * term)

Calculation example:

A used car is to be paid for with a loan. The purchase price is 6.000 euros. The bank makes an offer to finance the car over a 48-month period. The debit interest rate is 4.5 percent p.A. There are no processing fees or other extras.

Net credit amount: 6.000 euro, term: 4 years, debit interest rate: 4.50 percent

Calculation of debit interest:

Loan amount * debit interest rate * term = interest costs
6.000 euro * 4,50 % * 4 = 1.080 euro
(enter in calculator: 6.000 * 0,045 * 4)

Easy calculation of the APR:

(interest cost * 100) / (loan amount * term in years) = effective annual interest rate (in %)
(1.080 euro * 100) / (6.000 euros * 4) = 4.50% p.A.

This calculation of the APR is somewhat simplified. Lenders' calculations are much more complicated and also take into account the time lag of payments. Therefore, you will see in our comparisons that the APR is always a little larger than the borrowing rate.

With the following calculator mask you can calculate your desired credit and see how large this difference is with the individual credit offerers: