Have you ever noticed that when applying for a loan to different banks, at the same interest rates, the total overpayment for some reason differs? Or moreover, in a bank offering a higher interest rate, the overpayment will be lower than in a neighboring institution with a loan rate a few points lower.

Why it happens? If the annual rate does not reflect the real situation of overpayment, then what should the borrower pay attention to?

What is the annual interest rate on a loan?

If you see that the bank offers 20% per annum, does this mean that you will overpay exactly 20% for a loan? Not at all, and this is the mistake of many borrowers who trust the first numbers they see without delving into the very calculation of future debt.

1. Firstly, the specified loan rate will be charged on the residual debt in proportion to the number of months in a year.
2. Secondly, if a loan is taken, say, for three years, then a rate of 20% will be applied separately to each year of debt repayment (if early repayment was not applied).
3. Thirdly, it does not reflect the real essence of the overpayment, but is only a financial instrument for calculating debt. The annual interest does not take into account the various commissions and fees that the bank also attributes to the loan.

And to calculate the real overpayment on a loan, a completely different financial instrument is used - the effective interest rate on the loan, or, as it is also called TIC (full cost of the loan).

If the annual rate does not reflect the real situation of overpayment, then what should the borrower pay attention to? What is the effective interest rate?

Effective interest rate or full cost of the loan

This rate takes into account absolutely all the borrower's expenses associated with obtaining any type of loan, such as:
- commission for issuing a loan;
— commission for transaction support;
- commission for opening an account and its maintenance;
- commission for cash service etc.

In addition to the standard commission, banks include other fees in the effective interest rate, depending on the type of bank loan. For example, if a loan is issued with collateral in the form of real estate or transport, then the bank's costs for assessing the collateral property are also included in the total cost of the loan. This also includes the services of a notary, necessary for certain credit transactions.

If the borrower connects to various insurance programs: life, disability, in case of reduction, collateral protection and others, then the cost of these services is also reflected in the total cost of the loan, although these funds are used to pay for the services of not the bank itself, but insurance companies.

What is not included in the effective interest rate?

This rate does not take into account various fines and penalties that may apply to the borrower in case of violation of the loan agreement. It does not include fees for making monthly payments. The amount of these payments cannot be predicted, or they may not exist at all. If it is a cash loan with funds credited to plastic card or credit card, then the commission for withdrawing funds in this case will not be included in the effective interest rate on the loan.

How is the effective interest rate calculated?

Calculation of effective interest rate conducted according to a special formula developed by the Central Bank. Of course, you can do the calculation yourself, knowing all the additional payments included in the loan, but in general, banks are obliged to announce its value before starting the process.

How can you influence the total cost of the loan?

The effective interest rate of the same loan may increase or decrease due to changes in the terms of the loan, such as the maturity of the funds. This is due to the fact that if the loan is issued for a year, then all commissions are distributed in an equal amount for each month. And if the loan is issued for two years, then the amount of commission is divided not by 12, but by 24 months. So it turns out that the effective interest rate in the first case will be higher.

Another issuance condition that affects the size of the total cost of the loan is the type of monthly payments. These can be annuity (always the same amount every month), differentiated (when every month monthly payment goes to decrease) or bullet (with such a scheme, the borrower first pays interest to the bank, and only then the main debt). If we compare these three types of payments, then with a differentiated one, the effective rate will be the lowest.

Why does the borrower need to know the effective rate?

Well, let's start with the fact that, by law, every bank, starting to issue a loan, is obliged to inform the borrower of the full cost of the loan. But in reality, everything turns out differently, borrowers mistakenly consider the annual interest rate to be the main indicator of overpayment, and banks are in no hurry to announce the effective one. If the bank does not talk about the effective rate first, then let the borrower himself begin to be interested in its value.

Knowing the effective rate allows the borrower to objectively assess loan offers. One bank may offer an annual rate of 15%, but the value of the total cost of the loan will be 40%, and the other offers 25% per annum, but its effective rate will be 30%.

Before taking out a loan, be sure to ask the bank for the value of the effective interest rate, this is the only real indicator of overpayment.

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Today I want to tell you about what is effective loan rate, why it is needed, how, by what formula the effective rate is calculated, how you can calculate it yourself.

In my opinion, the calculation of the effective interest rate on a loan today is simply necessary for those who are going to, and here's why.

Now all banks use different schemes for generating income from lending, there is no longer that single annual rate that could be relied on 10 years ago, and, in addition to it, there are many annual and monthly commissions in which the devil himself will break his leg. Therefore, it is very difficult to compare the lending conditions of the two banks (the banks are counting on this). Here it is not enough just to compare interest rates and fees, you also need to take into account many other nuances that affect the real cost of a loan: for example, its term.

Precisely in order to be able to accurately compare which bank more favorable conditions lending, and there was an effective interest rate. First, the most advanced borrowers began to calculate it, and then in some countries, even at the legislative level, banks were obliged to inform their customers of the effective interest rate. So what is this indicator?

The effective loan rate is the expression of all loan payments contained in the terms and conditions of the loan agreement, in one indicator, reduced to an annual interest rate that is understandable to everyone. In other words, this is the real annual rate that the borrower will pay for using the loan, taking into account the interest rate, all commissions, the repayment scheme and the loan term. The calculation of the effective interest rate on the loan does not include the cost of services related to the loan (insurance, notary services, expert assessment services, etc.).

The calculation of the effective interest rate on a loan is quite difficult in itself, but, as they say, it is possible, especially considering that current technologies can significantly simplify the calculation procedure. So, let's look at how to calculate the effective interest rate on a loan.

Calculation of the effective rate on a loan using the formula.

The first traditional option is to use a formula. The formula for calculating the effective rate itself is rather complicated, but I still consider it necessary to voice it so that you understand what it is about.

As you can see, the most difficult thing is to calculate the effective rate on a loan with an annuity repayment scheme, which banks have been so fond of using lately. Because, looking ahead, I will say that with exactly the same annual interest and commissions on a loan with an annuity repayment schedule, the effective interest rate will be higher, and the longer the loan term, the greater this difference will be.

If desired, the formula for calculating the effective rate on a loan can be simplified, in general, there are several options, the main thing is to compare the conditions of different banks using one formula in order to see where they are more profitable.

Calculation of the effective interest rate on a loan in excel (excel).

In order not to suffer with complex mathematical calculations, in which, most likely, no one understood anything (and this is quite normal, not all of us are mathematicians here), you can use Excel to calculate the effective loan rate. This method is suitable, first of all, for those who are “friends” with this spreadsheet editor, who know what functions are and how to use them. If there is no such knowledge yet, then they can be obtained from standard reference materials, which are called by the F1 key.

The spreadsheet editor MS Excel already has some built-in functions that allow you to calculate the effective interest rate:

– EFFECT (EFFECT);

– CHISTVNDOH (XIRR);

– PMT (PMT);

I will not describe in detail all the options for carrying out the calculations we need: how these functions work, and how they should be used correctly - you can find this information in detail in the MS Excel help. Here is an example of calculating the effective interest rate using the PMT function:

In the formula bar, you can see what the format of the PMT function looks like, and based on the cells involved in the formula, you can see what it counts. I draw your attention to the fact that the value of the amount (in the example - cell B3) must be indicated with a minus sign.

Calculation of the effective interest rate on a loan on a loan calculator.

And, finally, if both manual mathematics and Excel are not suitable for you (probably they are), then we choose the simplest method: we type “calculator for calculating the effective interest rate” in the search engine, open something from the search results and use it. Here is an example of such a calculation:

The downside is that you will not understand on what basis he calculates it, but, on the other hand, you may not need this, because, as you can see from the excel formula and functions, this procedure is not simple. Thus, you simply compare the effective rates on loans in different banks that you are considering and choose the option where this indicator is lower.

In conclusion, I want to add that the calculation of the effective interest rate can be made not only for credit products, but also for deposit products, for example, if compound interest is expected to be charged.

You now have an idea of ​​what the effective loan rate (effective interest rate) is and how you can calculate it. I hope that this information will be useful to you. Stay tuned and learn how to use your personal finances effectively and efficiently. See you soon!

Today, every fifth citizen of Russia has his own account, to which certain interest is accrued monthly. Annual quantity banking clients continues to grow as it is the most efficient and easiest method to increase equity. Some people invest small amounts, in an effort to save up a child for education in a few years, others save for a car, and there are those who live solely on the interest rate, having invested a huge amount, which constantly brings a corresponding income.

Becoming a client of the banking system, you no longer need to think about anything, and you only remember the final amount of your deposit and the payment terms. But, without trying to delve deeper into these complex economic processes, you automatically lose a certain part of your capital. In this article, we will analyze in detail what the effective interest rate on a deposit is, and how it differs from the rest.

Nominal and effective rate, what is the difference

As a rule, bank employees announce to the client only the nominal deposit rate, which does not reflect all its capabilities and does not take into account the associated risks. Speaking in simple words, the nominal rate reflects only the real picture at a certain moment, without giving any long-term forecasts. As for the effective rate, it will always be higher than the nominal rate, since it is used to calculate the specified frequency, which is subsequently added to the body of the deposit.

So, the effective interest rate is a complex economic coefficient that allows you to find out the amount of real income, taking into account all additional indicators.
Turns out that the nominal rate paints the wrong picture, beneficial to the banking system, and the effective rate helps to understand and understand the real possibilities of the amount you have invested.

The effective rate will always be higher than the nominal

How does it work in real life?

You can endlessly appeal complex economic terms, which in fact will be incomprehensible to many. But our task is to teach you to understand on your own banking systems so that you can extract the maximum profit from the deposit.

Let's look at two conditional situations:

1. man made Bank deposit in the amount of 7 thousand rubles at a nominal rate, say, 15% per annum for twelve months. After the expiration of his contract, he receives 8,050 rubles in his hands.
2. His colleague also made a similar deposit in the same bank, but at an effective rate, having calculated the monthly interest capitalization. But since the payment will occur monthly, the 15% rate is also divided by 12 months, for a total we get 1.25%. Thus, after making an easy calculation, we understand that in the first month a person earned 87.5 rubles. Accordingly, next month, interest will be charged not on 7 thousand rubles, but on 7087.5. If we calculate another 11 months, it turns out that the final income of the second person will be slightly higher than the first, despite the same deposit amount and interest rate.

When concluding an agreement with a bank, you always see only the nominal rate, and you will have to think how to calculate the effective one yourself. Some people completely trust the bank, hoping for their honesty and decency. But do not forget that everyone wants to earn money and get the maximum benefit, and this is especially true for bank employees. Knowing the intricacies of the nominal and effective rates, you will be additionally protected from fraud and understand in advance how much you should receive at the end of the contract.

How to calculate the effective interest rate?

In order to be able to quickly and, most importantly, correctly calculate the interest rate on your deposit, there is a special calculation formula (see picture below).

Formula for calculating the effective interest rate

Here is the compound interest formula used to calculate the interest rate. But not everyone understands the mathematical language, so let's analyze each item separately in simple words:

• EU– the final income that you will receive at the end of the contract;
• FROM- the nominal rate on the deposit. As you already know, it is she who is most often indicated in the contract;
• N– intervals of capitalization in relation to the terms of payments;
• M– repetition of ranges.

If desired, you can use another method, which is to calculate each month separately. It is difficult to say which one is more convenient, since for some it will be easier to apply the formula, while for others it will take a little more time, but not delve into complex mathematical calculations.

Does depositing an account affect the effective interest rate?

As a rule, an agreement with a bank implies the ability to replenish / withdraw the invested amount at any time. If everything is clear with the second one: you just withdraw money and, most likely, lose part of the accumulated interest, then a slightly different system operates with replenishment of the account.

Replenishing the body of the deposit during the validity period of the agreement, interest from the next month, respectively, will be charged from the updated amount. It is difficult to give specific recommendations here, since the conditions under the contract in a particular bank may differ slightly from each other. Nevertheless, the general payout scheme remains approximately the same: you can partially withdraw the invested amount, increase it, or even take it in full.

The larger the body of the deposit, the greater the interest and the amount that you will receive upon the expiration of cooperation with the bank.

Most often, bank employees do not disclose the effective rate when concluding an agreement

Effective interest rate and credit system

So, the effective interest rate is, first of all, the real picture of your deposit, reflecting all its possibilities and pitfalls. When it comes to a deposit account, the effective rate only plays into the hands of the client, but in the case of a loan, everything happens the other way around.
The loan rate reflects the entire amount that you have to pay to the bank at the end of the contract. That is, it includes not only monthly interest, but also the amount of your loan service, commissions, insurance and other expenses.

How is the effective interest rate calculated?

To begin with, the total amount of your debt is taken, then all related expenses for a certain period are added to it, and the total amount of the monthly payment that the client must make is calculated. As a rule, this method is used to inform potential borrowers about the terms of lending in order to help them choose the best option.

The formula for calculating the interest rate on a loan

The formula for calculating the effective credit rate in credit system

As you can see in the picture, the formula is quite simple and does not require deep mathematical knowledge. But still, let's take a closer look at all the points, so as not to make mistakes later.

di- the date of expiration of the contract, that is, the last payment of the loan.
d1- the very first payment date.
Pi- the amount that the client paid during the last payment.

So, the effective interest rate on a loan is a system for calculating the real amount that you will have to pay the bank in the end. The ability to correctly calculate the interest rate on a loan will make it possible to distribute your income in advance and not violate the terms of payments, which will significantly save both your money and your nerves.

Do not be afraid to demand from the bank to provide complete information about the proposed credit system, as this is your right prescribed in the legislation on banking article on consumer rights.

The effective interest rate on a loan (like almost any other financial instrument) is an expression of all future cash payments(revenues from financial instrument), contained in the terms of the contract, in the indicator reduced to the annual interest rate. That is, this is the real rate that the borrower will pay for using the bank's money (the investor will receive). This takes into account the interest rate itself, specified in the contract, all commissions, repayment schemes, the term of the loan (deposit).

Calculating the effective interest rate on a loan in Excel

There are a number of built-in functions in Excel that allow you to calculate the effective interest rate, both including additional fees and charges, and without taking into account (based only on the nominal rate and loan term).

The borrower took out a loan in the amount of 150,000 rubles. Term - 1 year (12 months). The nominal annual rate is 18%. Loan payments are shown in the table:

Since the example does not provide for additional commissions and fees, we will determine the annual effective rate using the EFFECT function.

We call the "Function Wizard". In the group "Financial" we find the function EFFECT. Arguments:

1. "Nominal rate" - the annual rate on the loan specified in the agreement with the bank. In the example - 18% (0.18).
2. "Number of periods" - the number of periods in a year for which interest is calculated. In the example, 12 months.

The effective rate on the loan is 19.56%.

Let's complicate the task by adding a one-time commission when issuing a loan in the amount of 1% of the amount of 150,000 rubles. In monetary terms - 1500 rubles. The borrower will receive 148,500 rubles in his hands.

We entered in the column with monthly payments 148,500 with a “-” sign, because. The bank first gives this money. Subsequent payments made by the borrower to the cashier are positive for the bank. We consider the internal rate of return from the point of view of the bank: it acts as an investor.

The function yielded an effective monthly rate of 1.69%. To calculate the nominal rate, multiply the result by 12 (loan term): 1.69% * 12 = 20.28%. Let's recalculate the effective interest rate:

A one-time fee of 1% increased the effective annual interest rate by 2.72%. Now: 22.28%.

Let's add a monthly account maintenance fee of 300 rubles to the loan payment scheme. The monthly effective rate will be 2.04%.

Nominal rate: 2.04% * 12 = 24.48%. Effective annual rate:

Monthly fees increased it to 27.42%. But in loan agreement the figure of 18% will still stand. Truth, new law obliges banks to indicate in the loan agreement the effective annual interest rate. But the borrower will see this figure after the approval and conclusion of the contract.



What is the difference between leasing and a loan

Leasing is a long-term lease of vehicles, real estate, equipment with the possibility of their further redemption. The lessor acquires the property and transfers it on the basis of the contract to the individual / legal entity under certain conditions. The lessee uses the property (for personal/business purposes) and pays the lessor for the right to use it.

In fact, this is the same loan. Only the property will belong to the lessor until the lessee fully repays the cost of the acquired object plus interest for use.

The calculation of the effective leasing rate in Excel is carried out according to the same scheme as the calculation of the annual interest rate on a loan. Let's take an example with another function.

Input data:

You can follow the well-trodden path: calculate the internal rate of return, and then multiply the result by 12. But we use the NETINOR function (returns the internal rate of return for the cash flow graph).

Function arguments:

The effective lease rate was 23.28%.

Calculation of the effective rate on government bonds in Excel

OVGZ - bonds of an internal state loan. They can be compared to bank deposits. Since in the same way the investor receives a return of the entire amount of invested funds plus additional income in the form of interest. The central bank acts as a guarantor of the safety of funds.

The effective rate allows you to estimate the real income, because takes into account interest capitalization. For example, let's "purchase" one-year bonds in the amount of 50,000 at 17%. To calculate your income, use the BS function:

Assume that interest is capitalized monthly. Therefore, we divide 17% by 12. We enter the result in the form of a decimal fraction in the "Rate" field. In the "Nper" field, enter the number of capitalization periods. We will not receive monthly fixed payments, so we leave the “Pmt” field free. In the column "Ps" we enter the amount of invested funds with the sign "-".

The window immediately shows the amount that can be obtained for bonds at the end of the period. This is the monetary expression of accrued compound interest.

When applying to a bank for borrowed funds in the first place, customers look at the amount of interest that accompanies a particular loan program. This applies to various loans, from mortgage to consumer.

Information about the full amount of overpayments allows borrowers to accurately determine the advantages and disadvantages of a particular credit program, choose the appropriate offer.

About how the nominal interest rate differs from the effective one, about the functions and calculation of the full loan rate, read further in the material.

Deciphering the concept of "effective interest rate". What is the difference between annual and nominal?

The main concept in the credit business is the term - effective interest rate - effective rate. In accessible words, the designation is the total number of commissions and payments that the payer undertakes to pay for the established credit period. In fact, this total cost loans.

Under current law, assignors must notify their consumers of the full amount of the proposed loan and immediately warn about the value of the productive dividend rate.

But, as practice shows, in reality it happens in a different way. Advertising companies for mortgage, consumer, car loans sound like this: “Loan for the purchase of a car without overpayments”, “Loan for housing at 0%”.

Billboards and the Internet are getting rich with such fabulous offers. Visiting a branch of a bank and immersing themselves in the sphere of lending, consumers are met with mind-boggling amounts, characterized by debt obligations of borrowers.

In order to calculate the effective loan salary, a special formula is used, with which you can work both independently and with the help of financial experts. The official websites of some banking institutions present professional loan calculators, allowing to determine the total volume preferred shares on credit.

Consumers are mistaken when they say that the nominal interest rate and the effective rate on a loan are the same thing, because they are completely different concepts.

If the second definition characterizes the full cost of the loan, then the nominal interest is the amount of overpayment on the loan for the year of lending.

For example, if a citizen borrowed 1,000 rubles and the overpayment for the current year was 250 rubles, this means that the nominal interest rate is 25%. These data are communicated to consumers when they first contact bank employees.

Functional purpose of the effective interest rate

The productive rate of interest is a value that is generally accepted and widely used in the banking structure. It is used for informative purposes, to educate the client base about a particular loan program, that is, it performs a comparative function, as a result of which consumers get the opportunity to take advantage of a profitable debt offer.

Because lenders use various ways calculation of effective preferred shares, the salaries announced by banks do not always add up so that the lowest rate indicates the most profitable loan.

It happens that a high loan dividend characterizes a more loyal resultant recovery rate. Therefore, experts recommend that consumers contact competent specialists with the choice of a profitable loan.

The controversy over economical salary charges in the banking sector came to the fore in 2007, after commercial establishments received an order that they undertake to fully inform citizens about the amount of interest.

As practice has shown, such an informative appointment of an effective rate of interest has become irrational, unclaimed and inconvenient. After all, payers do not want calculations, but to hear specific amounts of overpayments on a loan, and it is impossible to universalize the loan share of overpayments, since the calculations include commissions that arose after the signing of the loan agreement.

Ways to influence the size of the total cost of the loan

Next to the question of what is the effective interest rate on a loan, another one arises, which talks about methods of increasing and reducing its size. Citizens are concerned about whether this credit value is fixed or whether it can be influenced.

The answer to this problem lies in the conditions of lending, that is, if the borrower draws up a loan for a period of 12 months, then the commission charges are divided precisely for this period.

In the case of an increase in the service period, for example, up to 36 months, quotas are signed for a longer period, which means that in the first case, the effective interest rate is higher.

The amount of the total cost of investment is also affected by the chosen method of repayment of the loan. As you know, payers can make a debt both in annuity and differentiated parts.

Also, by proxy of the bank, payments can be bulleted, that is, the user first of all makes the accrued parts, and then he already pays off with the main body of the loan.

So, the minimum amount of the total cost of the loan is observed with differentiated contributions, when the maximum part of the debt is repaid first, and the remaining amount is paid in installments, the amount of which is reduced.

The theory of calculating the annual interest rate on a loan. How to correctly calculate the effective loan collection?

Planning to issue bank loan, each applicant has the legal right to know reliable information about the full cost of debt funds before signing the master agreement.

This is necessary so that the client can objectively assess the costs, compare overpayments with other banking offers.

You can calculate the effective interest rate on a loan yourself, relying on publicly available formulas, or involve professional financiers in the process, since it was extremely rare to correctly sum up the results on your own.

The total cost of the loan includes indicators of payments for:

• payment of principal;
• repayment of interest on a loan;
• commissions for the issuance, opening, maintenance of sponsorship;
• services of state structures that have registered collateral property;
• services of insurance companies.

According to the law, the norm annual interest not include commissions for early or partial repayment of the debt, as well as various penalties associated with delay, since such nuances cannot be calculated in advance and are included in the case if necessary.

To determine the full annual penalty, formulas of different formats are used. However, for the simplicity and ease of the financial process, it is recommended to apply the following paradigm:

Consider the values ​​of indicators, where:

• i - general effective norm (%);
• S is the total number of all payments on investments;
• S0 - the amount of the loan;
• n - service period (the number of months is indicated).

In order to make the execution of an economic operation more understandable, let's compare two examples of calculation with different credit terms, in the first example we will consider the figure as a figure of 12 months, in the second - 36 months. The loan amount in this case is 50,000 rubles, at 22% per annum. The total number of payments is 56,157 rubles.

So, the problem can be solved in stages:

1. 56 157 / 50 000 — 1 = 0,12314
2. 12/12 = 1
3. 0,12314/ 1= 0,12314
4. 0,12314 * 100 = 12,31 %

This means that the size of the productive value is 12.31%, which is equal to 6,157 rubles.

For three years, this indicator will be as follows:

1. 56 157/50000 — 1 = 0,12314
2. 36/12= 3
3. 0,12314/ 3=0, 0410
4. 0, 0410 * 100 = 4, 1 %

This indicates that the longer the loan term, the lower the effective annual salary on the loan.

Thus, it can be said that the open banking information about real overpayments on a particular loan gives consumers the opportunity not only to determine for themselves profitable proposition, and consider your own chances of paying the established debt in order to eliminate the chances of non-payment and risky delinquencies on the loan.