Saving & borrowing2 min read
Effective interest rateGerman: Effektivzins
An effective annual borrowing rate expresses yearly credit costs including certain charges that determine the price.
In plain language
Unlike a simple nominal borrowing rate, it includes additional contractual costs under applicable calculation rules. Compare loans with the same amount and term. Not every possible optional service is necessarily included.
Let’s make it concrete
Two loans have the same nominal rate. If one includes additional mandatory charges, its effective annual rate may be higher.
Simplified example for illustration.Worth understanding
A low monthly payment does not automatically make a loan cheap. A longer term can increase total payments.
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Financial education for orientation. No individual investment, tax or legal advice.
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