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asked 9 months ago
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Effective interest rate is defined as a loan or financial product restated from nominal interest rate. It is an interest which incorporates annual compounding interest.
Effective interest rate is used to compare the annual interest rate between loans with different compounding terms such as:
In this case, 5% is the stated interest as well as the effective interest if it is calculated for one term only.
Effective interest rate is used to compare the annual interest rate between loans with different compounding terms such as:
- Daily
- Monthly
- Weekly
- Annually
- or semi-annually
In this case, 5% is the stated interest as well as the effective interest if it is calculated for one term only.
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