Free lending tool
Effective interest rate calculator
A loan quoted at “10% flat” does not cost 10%. Enter the terms below to see the effective interest rate (EIR) and APR next to the quoted figure — with fees folded in — so you know what the credit actually costs.
Loan terms
Fees
OptionalOrigination, arrangement or processing fees taken before the money reaches the borrower.
Service, admin or insurance charges added to every repayment.
Effective interest rate
19.53%
Quoted rate: 10.00% flat
+9.53 pp above the quoted rate
APR (nominal annual): 17.97%
The annual rate actually paid, once the shrinking balance, the payment frequency and every fee are accounted for.
- Monthly instalment
- ZAR 916.67
- Number of payments
- 12
- Amount borrower receives
- ZAR 10,000.00
- Total interest
- ZAR 1,000.00
- Total fees
- ZAR 0.00
- Total cost of credit
- ZAR 1,000.00
- Total repaid
- ZAR 11,000.00
Where the money goes
- Principal
- Interest
- Fees
An estimate for comparison. Your regulator or lender may treat fees, rounding and payment dates differently, which can move the disclosed APR slightly.
Why the quoted rate is rarely the real one
Three things quietly push the true cost above the headline number. The calculator accounts for all of them.
- 1
The balance shrinks, flat rates don’t
A flat rate charges interest on the full original amount for the entire term — even in the final month, when most of the loan is already repaid. The borrower pays for money they no longer have.
- 2
Frequency compounds
Repaying weekly instead of yearly means capital comes back sooner and can be lent again sooner. The more often payments land, the higher the effective rate behind the same headline figure.
- 3
Fees are interest by another name
An arrangement fee deducted at disbursement means the borrower never receives the full amount but repays as though they did. Spread across a short term, a small fee moves the effective rate a long way.
Flat rate vs reducing balance
The same 10% on a 12-month loan, quoted two ways. The reducing-balance figure is the honest one.
| Flat rate vs reducing balance | Flat rate | Reducing balance |
|---|---|---|
| Interest is charged on | The original amount, every period | Only the outstanding balance |
| Total interest on 10% over 12 months | 10% of the loan | About 5.5% of the loan |
| Effective interest rate | About 19.5% | About 10.5% |
| Common in | Microfinance, asset finance, payroll lending | Bank loans, mortgages, most regulated credit |
Neither method is wrong to use — but quoting a flat rate without disclosing the effective rate makes a loan look roughly half as expensive as it is.
Questions about EIR and APR
- Both annualise the same underlying periodic rate, they just do it differently. APR multiplies the periodic rate by the number of periods in a year and stops there. EIR compounds it, so it reflects what the borrower pays if interest earned in one period is charged in the next. EIR is always the higher of the two, and the gap widens as payments get more frequent.
- Because a flat rate charges interest on the amount originally borrowed, not on what is still owed. By the final instalment the borrower may owe less than a tenth of the loan but is still paying interest on all of it. Over a 12-month term with monthly repayments, a flat rate works out to roughly double its headline number.
- It should. Any charge a borrower cannot avoid — origination, arrangement, processing, compulsory insurance — is part of the cost of credit and belongs in the calculation. This tool deducts upfront fees from the amount disbursed and adds recurring fees to each instalment, which is the standard treatment.
- There is no single multiplier, because the answer depends on the term and the payment frequency. As a rough guide, a flat rate on a loan repaid in equal instalments over one year is close to double the equivalent reducing-balance rate. For anything you intend to quote or disclose, calculate it properly — set the method to flat above and read the effective rate.
- Follow your regulator, which in most markets means the effective annual rate or an APR calculated to a prescribed method. Beyond compliance, quoting the effective rate is what makes your pricing comparable to other lenders — and borrowers increasingly check.
- No. The whole calculation runs in your browser. Nothing you type is sent to a server, saved, or logged, and there is no sign-up.
What is the difference between EIR and APR?
Why is a flat rate so much higher as an effective rate?
Does APR include fees?
How do I convert a flat rate to a reducing-balance rate?
Which rate should I disclose to borrowers?
Is my data stored?
Price every loan this way, automatically
Lendbox calculates effective rates, builds the schedule and tracks what is actually owed across your whole book — not one loan at a time in a calculator.
No credit card required.