# Credit calculator: how the interest rate is composed

If you are thinking about taking out a loan, you should always keep an eye on the interest rate. He decides whether a loan offers you good conditions and how expensive it is to repay the borrowed amount. A loan calculator will help you calculate the actual costs involved in taking out a loan. In this article you will learn how the interest rate can be calculated in the country using a loan calculator and what is important around the topic of loan calculator.

## Why is the interest rate on the loan calculator so important?

When it comes to loans, there is always talk of the interest rate. These are fees that the lender charges when you take out a loan from them. When you repay the loan, you not only have to repay the pure loan amount, but also pay the interest on the borrowed money at the agreed interest rate. This interest accrues every month until you have fully repaid the loan. They are based on the remaining loan amount.

The interest rate therefore has a significant impact on the total repayment amount of a loan. It is given in percent and refers to the sum that has to be paid back. While the highest possible interest rate is desirable from the customer’s point of view for savings accounts, the opposite is the case for loans because you have to pay the interest rate here. So check the loan offers of the various lenders carefully to be sure to choose the one with the best conditions.

### Therefore, the effective interest rate is more important than the nominal interest rate

The nominal and effective interest rates are important for the loan calculator. The nominal interest is also called loan interest. This expresses how much interest has to be paid on the corresponding amount of the loan. If the nominal interest is known, the total interest costs can be calculated with the loan calculator.

The annual percentage rate is more important for your financial planning with a loan calculator. Only this allows you to estimate the realistic total cost of the loan. The total cost of a loan includes other aspects that are left out if you simply look at the nominal interest rate.

Another important factor for calculating the effective interest rate in the context of a credit calculator is, for example, the term of the loan: the longer the term of the contract, the higher the actual interest costs. Repayment rates are also added, and processing fees set by the lender also affect the effective interest rate on a loan. The effective annual interest rate is therefore particularly important for a loan calculator.

## Loan calculator: how do you calculate the interest on a loan?

To calculate the interest cost of a loan with a loan calculator, you first need the nominal interest. You calculate the total interest by multiplying the loan amount by the interest rate and then dividing it by 100. This will give you the interest you have to pay on your loan each year.

For example: You have taken out a loan of 10,000 dollar. The term of the contract is four years and the nominal interest rate on your loan is 4.5 percent. So you calculate 10,000 x 4.5 / 100. The nominal interest is 450 dollar.

To choose the best loan for you, you also need to know the APR. You can also calculate this using the loan calculator: The factors that play a role in this calculation are the total loan costs, the net loan amount and the term of the contract.

The invoice is then as follows at the loan calculator: In the first step, the total loan costs are divided by the net loan amount. In the second step, the calculation is: 24 divided by the total term (in months) + 1. Both results are multiplied together and then multiplied again by 100.

The actual interest rate to be paid depends on the balance of your loan. If you borrowed USD 10,000 from the provider, the interest rate is calculated on this sum. In the second month, however, you already paid something back. Then you pay the interest rate on the remaining loan amount. The repayment part of the first installment is therefore deducted from the invoice in the loan calculator. This is also calculated accordingly for all further months.

Banks often do not provide the nominal interest rate in a sample calculation, but rather the effective annual interest rate. However, this depends on various aspects, which differ from person to person.

## The factors affect the interest rate on a loan

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But how does the interest rate come about? On the one hand there are legal regulations. In the country, for example, the maximum interest rate should generally not exceed 10 percent. This emerges from the law on consumer credit. The Council determines how high the maximum interest rate actually is.

Banks are therefore not allowed to charge higher interest on the repayment of a loan than the statutory maximum interest rate. Within this framework, it is up to the respective loan provider how high the minimum and maximum interest rates are. You will always find a range of possible interest rates if you compare different offers before taking out a loan and use the respective loan calculator.

It depends on your personal characteristics, how high the interest rate is in your case. On the one hand, it depends on the chosen term of your loan contract. The longer the term, the greater the risk for the lender that you will not repay the money in full or on time. So you have to expect higher interest rates if you want to repay the money over a longer period of time. If it is possible, it is worth choosing a short repayment period for your personal loan because the interest rate will then be lower. A loan calculator shows you the differences.