Have you ever wondered what is effective interest rate on loan or how it’s calculated?
The concept can be confusing for many borrowers. It could be especially for those who need to know why the advertised rate occasionally differs from their monthly payments.
If this article piques your curiosity, read on. It will help the next time you’re looking to get a loan. You will have adequate information on what is effective interest rate on loan.
The EIR meaning is the actual rate you pay on your loan instead of the advertised annual percentage rate (APR). It’s calculated by adding your monthly balance to the yearly payment, and then dividing that sum by 12 months.
The effective interest rate usually exceeds the advertised because you’re paying for both principal and interest simultaneously.
EIR is a term used to describe the total interest on a loan. It’s the amount you’ll pay to lenders over the life of your loan.
The EIR is calculated using information such as:
APR is the annual percentage rate that includes all fees and other costs associated with the loan. It’s calculated by taking your total borrowing cost and dividing it by your principal amount, then multiplying that figure by one hundred (100). The result is what you will pay in interest over a while.
Generally, loans with higher APRs are more expensive than the ones with lower APRs because lenders charge more when you borrow money from them. However, there are exceptions where some banks offer special rates for student loans or personal loans. In return, you’ll save money compared to similar products offered anywhere else across Singapore.
Many banks use the effective interest rate calculator Singapore while calculating the EIR. The EIR formula divides the total interest paid over the life of a loan by its principal amount. Consider using the following EIR calculator Singapore method:
Effective Interest Rate = (1 + CPI) x Loan Balance / [1 + (1/365) x Loan Balance]
What is effective interest rate on loan and why is it higher than advertised rates? Here are a few reasons:
When this occurs, purchasing a so-called “junk” or “investment grade” bond makes sense.
Besides understanding what is effective interest rate on loan, it’s good to know how to pick the best loan type. Here are a few factors to consider when choosing a loan product from a bank in Singapore
It’s also used to determine how much interest would be charged per year on your new mortgage/loan payments over its lifetime.
The simple interest rate is the interest charged on loan. It’s calculated by multiplying the principal by the interest rate and not considering any compounding. Simple interest rates are often used in car loans and credit cards because they’re easy to understand and provide guidelines for how much money you should pay back each month or year.
The formula for finding the simple interest rate is: [(1+r) n] n where r = annual percentage rate, n = number of months until maturity
You must know what is effective interest rate on loan for better planning. Some benefits of having this information include:
Understanding what is effective interest rate on loan can help you decide whether or not it makes sense to borrow money from a lender.
The effective monthly repayment amount is higher than the advertised monthly payment amount. The technique works best for those with sufficient savings or other assets to use as collateral for securing loans.
If you found this information helpful and would like to learn more, don’t hesitate to get in touch with 1AP Capital. It’s a trustworthy money lender in Singapore that offers the best advice about borrowing. It also offers you a variety of loan types, allowing you to choose the most appropriate for your needs.
Consider contacting 1AP Capital at any time for any questions you may have.
Apply for a loan now and enjoy a fast and 100% confidential process. All you need to do is provide your details, select the preferred loan type and click the “Apply Now” button.