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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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