How to use the Interest Rate Calculator
- Enter the amount actually borrowed or the cash price of the item.
- Enter the monthly payment being quoted.
- Enter the total number of payments.
- Read the implied APR and compare it against a bank or credit union quote.
How the calculation works
The annuity equation cannot be rearranged algebraically for the rate, so the calculator solves it numerically by bisection — repeatedly narrowing the rate range until the computed payment matches the one you entered to within a fraction of a cent.
This is the standard defence against payment-first selling. Dealers and rent-to-own outlets quote monthly payments rather than rates precisely because a small payment can hide a very large APR once the term is long enough.
The result is a nominal APR, calculated as the monthly rate times twelve. Where fees are also charged, add them to the amount borrowed to see the effective cost rather than the contract rate.
Solve r in PMT = P × r ÷ [1 − (1 + r)⁻ⁿ]; APR = r × 12Source: Regulation Z, 12 CFR Part 1026 Appendix J — actuarial method for APR determination.
Worked example
$20,000 borrowed, $420 a month for 60 months.
- Total repaid is $25,200, so $5,200 is finance cost.
- Bisection converges on a monthly rate near 0.796%.
- That annualises to roughly 9.6%.
An implied APR of about 9.6% — useful for comparing against any competing offer.
Frequently asked questions
Why is this different from total interest divided by amount?+
That naive ratio ignores the shrinking balance and typically understates the true rate by about half.
Does it handle zero-interest offers?+
Yes. If payments times term equals the amount borrowed, the solver returns 0%.
Can I use it for savings products?+
Yes, for a fixed-payment annuity. Growth products with irregular deposits need an IRR calculation instead.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.