Interest rate converter
Convert an interest rate between compounding periods. A rate quoted per month is not twelve times the monthly figure once it compounds.
That's 1.41× as high as a car loan, while a credit card is 1.73× higher. A thousand left at that rate for ten years becomes about 3,300.
What it means
What does that rate cost?
Information only, not financial advice. Real products add fees, and legal definitions of APR differ between countries.
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Three things worth knowing
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EAR = (1 + monthly)¹² − 1
2% a month gives 1.02¹² − 1 = 26.8% a year. The gap between the nominal 24% and the effective 26.8% is the compounding.
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Why "effective"
Lenders can make a rate look smaller by quoting it per period. Disclosure rules exist because the effective annual rate is the only one that cannot be dressed up.
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APR is not AER
APR is nominal: the periodic rate times the number of periods. AER is what you actually pay. The faster the compounding, the wider the gap.
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Background
About compounding
A card charging 2% a month is not charging 24% a year: compounding makes it 26.8%. The only figure that compares two products fairly is the effective annual rate, which folds the compounding in.
A nominal APR does the opposite: it divides the annual figure by the periods and ignores the compounding entirely.