Effective interest rate

Annualize the effective cost using loan interest, deposit interest, and balances over a term.

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Calculation specification

Reviewed on:

Formula basis

Loan rate=(loan interest/loan balance)×(12/months)×100. Effective rate={(loan interest−deposit interest)/(loan balance−deposit balance)}×(12/months)×100.

Calculation method

Annualizes the ordinary loan interest ratio, then subtracts a compensating deposit and its interest to estimate an effective loan rate.

Exclusions and checks required

  • Balances are treated as constant; average balances, compounding, and actual days are not used.
  • Equal loan and deposit balances are invalid, and fees, tax, or the liquidity cost of the deposit are excluded.

Example input:：A JPY 10 million loan with a JPY 2 million compensating deposit

periodMonths
12
loanInterestMan
30
loanBalanceMan
1000
depositInterestMan
2
depositBalanceMan
200

This simple annualization is not a statutory APR or a bank-disclosed rate.

FAQ

Who is this calculator for? Effective interest rate

Annualize the effective cost using loan interest, deposit interest, and balances over a term.

What values should I enter?

Applies to: Interest & value / (Loan interest − Deposit interest) ÷ (Loan balance − Deposit balance) × annualization

How should I interpret this estimate?

Annualizes the ordinary loan interest ratio, then subtracts a compensating deposit and its interest to estimate an effective loan rate.

How to use

  1. Enter your input values and press Calculate.
  2. Review the result and compare it with expected context.
  3. Loan rate=(loan interest/loan balance)×(12/months)×100. Effective rate={(loan interest−deposit interest)/(loan balance−deposit balance)}×(12/months)×100.