# Calculating an interest rate?



## R30 (Oct 30, 2005)

Hey, i'm hoping there's a simple equation for this but googling lead me no where.

I'd like to know if I can work out an interest rate if I know the amount borrowed and the amount paid monthly and the term of the loan.

Is there a way to calculate this?


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## DiscoDriver (Oct 27, 2009)

Yep - do you have access to Excel? The easiest way to determine the rate is using the RATE function in Excel. If you don't have it, if you give me the amount borrowed (which is the PV in Excel help), the amount paid each month (PMT) and the term (ie how many months you pay the loan back over - which is NPER in Excel help) I can calculate it for you.


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## R30 (Oct 30, 2005)

Yeah, I've got access to Excel. Though I do not use it much and will have to look up how to use functions like that.


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## R30 (Oct 30, 2005)

mm, nope sorry I don't get how to calculate it myself.

Here's some arbitary values to try it on...
Loan amount 8156.95, Term 48 months, repayments 206.67/month

If you don't mind punching those into excel that would be great please.


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## DiscoDriver (Oct 27, 2009)

That's a nominal rate of 9.95% per annum (or an APR of 10.41%).

Calculated as:
Nominal:
=RATE(48,-206.67,8156.95)*12

APR:
=((1+RATE(48,-206.67,8156.95))^12)-1


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## R30 (Oct 30, 2005)

Thanks Disco, useful to know how to do that.


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## organgrinder (Jan 20, 2008)

Another quick method, which is not as accurate, is to work out the flat rate of interest. The APR is approx double the flat rate. It doesn't let you calculate exact figures but it is good for comparisons.

For your figures it would be:

£206.67 x 48 = £9920.16
Deduct amount borrowed £8156.95 to give the interest payable = £1763.21
Divide interest by the original loan: £1763.21/£8156.95 = 21.62%
Divide the interest by the number of years: 21.62%/4 = 5.405% Flat rate

Double this to give an approximation of the APR = 10.81%

This is obviously not as accurate as Disc Drivers figures but it can be done on most phones if you are standing in a forecourt.

Just be aware that many car salesmen still use the flat rate when you ask them about interest rates although their paperwork all refers to APR as required by law.


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## R30 (Oct 30, 2005)

Thanks, I've noticed they're doing that that's why I want to double check the figures. Never believe the **** n bull that you've had their eyes out and they ain't making any profit on the finance. 

Having checked the figures and finding it worked out at 10+% I went and got a better rate from the bank so happy days.


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