A bank offers $120,000 disbursement at a 3.2 % nominal rate, but with an 8 % discount (the gross loan is correspondingly higher). Builder Mr. Reed wants to know the comparable effective rate over 10 years.
ℹ Gross = disbursement/(1−discount); effective rate from the actual disbursement.
Change any number and press "Calculate" – or use "Type in" on the right to watch it entered.
A discount makes a loan look cheaper (lower nominal rate) but shifts the cost into the disbursement deduction. Only the effective rate makes offers honestly comparable.
With a discount less is disbursed than you owe – a prepaid interest. The calculator takes the actual disbursement as the present value and finds the rate that fits the installments and remaining debt. This is how the effective rate exposes the seemingly low nominal rate.