Periodic interest rate

Periodic interest rate.

The periodic interest rate, sometimes called the nominal rate, is the interest rate a lender charges on the amount you borrow.

Lenders are also required to tell you what a loan will actually cost per year, expressed as an annual percentage rate (APR).

The APR combines any fees the lender may charge with a year of interest charges to give you the true annual interest rate. That allows you to compare loans on equal terms.

For example, suppose you take a $10,000 loan at 10% interest. You pay an origination fee of $350, so you actually borrow $9,650. Since you are getting a smaller loan, but repaying the full $10,000 with interest, the APR is closer to 10.35%.

The periodic rate is also the interest rate a bank or other financial institution pays on amounts you deposit. If you're earning compound interest, the periodic rate will be lower than the annual percentage yield (APY).

References in periodicals archive ?
This calculates the interest associated with each payment based on the previous loan balance and the periodic interest rate.
The Bureau alleges that the companies advertised a periodic interest rate for their loans without listing the corresponding annual percentage rate.
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