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Interest Rate Converter

1. Introduction and Example

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When you are looking at loans the period at which interest is added to the amount owing can vary. Most loans specify the nominal interest rate which is then divided by the number of periods in the year to work out the amount of interest due for each period. This makes it difficult to compare two loans which add interest at different periods since a nominal 12% loan with interest calculated every month has a higher effective interest rate than a nominal 12% loan with interest calculated quarterly.

The only real way to compare the interest rates applicable to two loans with the interest calculated at different periods is to convert the nominal rate into the equivalent effective interest rate.

Of course there are also many loan calculators that expect the nominal interest rate to be entered. In the rare instance where you have been quoted the effective interest rate you may need to convert this into the equivalent nominal rate in order to be able to use that calculator.

To save you the effort of working out how to convert between nominal and effective interest rates, I have written a calculator for you that can be easily added to your web page.

Here is the calculator. Simply enter the required values into the appropriate fields at the top and then press the appropriate button to convert from a nominal interest rate to the equivalent effective rate or from an effective rate to the equivalent nominal rate.

If you want a calculator like this for your site then the next step is to obtain the script.

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