Find the rate behind a monthly payment
Car dealers, furniture stores and some lenders quote only a monthly payment. If you know the amount borrowed, the payment and the number of years, you can work out the interest rate you are really paying. For example, borrowing $20,000 and paying $400 a month for 5 years works out to an interest rate of about 7.4%, and $4,000 in total interest.
The calculator tries different rates until the payments exactly pay off the loan amount, the same way a financial calculator does.
Why it matters
- A low monthly payment can hide a high rate or a very long term.
- Knowing the rate lets you compare the offer with a bank or credit union loan.
- Fees rolled into the loan raise the real cost: use the APR calculator to include them.
Frequently asked questions
Is this the same as the APR?
It equals the APR when there are no upfront fees. If you paid fees to get the loan, the APR is higher than this rate.
Do lenders have to tell me the rate?
Yes. The federal Truth in Lending Act requires lenders to disclose the APR and finance charges before you sign a consumer loan.
What if the result says the payments don't cover the loan?
That means the total of all payments is less than the amount borrowed, so the numbers can't describe a real loan. Check the amount, payment and term.