Interest Rate Calculator
Reverse calculate the annual interest rate of a loan if you know the monthly payment.
Don't let a low monthly payment fool you. Use our **Interest Rate Calculator** to reverse-engineer your loan offer and reveal the TRUE interest rate (APR) you are being charged.
Loan Details
5 years = 60 months
Estimated Annual Rate
APR (Nominal)
What is Interest Rate Calculator?
What is this calculator for?
Lenders often market loans based on the **Monthly Payment**, hiding the massive interest rate or long term behind an affordable-looking number.
This tool acts as a "truth serum." By entering the Loan Amount and the Monthly Payment, you can work backward to find the exact Annual Interest Rate needed to produce that payment.
Who Should Use This?
- Car Buyers: Dealerships love to say "How about $400/mo?" without mentioning the 12% rate.
- Homeowners: Evaluating Private Mortgage offers.
- Borrowers: Checking if a "0% interest" offer actually has hidden costs built into the price.
Why This Tool is Useful
There is no simple "formula" to solve for Interest Rate mathematically (it requires iterative computation). This tool does that heavy lifting instantly, protecting you from bad deals.
How to Use This Calculator
Gather the details from your loan offer:
- Loan Amount ($): The total amount you are borrowing (Price - Down Payment).
- Monthly Payment ($): The quoted installment.
- Term (Months): How long the loan lasts.
- 3 Years = 36 Months
- 5 Years = 60 Months
- 30 Years = 360 Months
Warning: The "Payment Packing" Trick
Unscrupulous lenders might quote a payment that includes hidden "add-ons" (like extended warranties). If this calculator shows a rate **higher** than what they verbally promised, check the contract for extra fees!
Formula & Calculation
The Interest Rate is the variable r in the Amortization Formula. Since r cannot be isolated algebraically, we calculate it using the Newton-Raphson Method.
We solve for 'r' where:
- P = Principal (Loan Amount)
- PMT = Monthly Payment
- n = Total number of months
Example Calculation
Example 1: The Dealership Offer
Scenario: You buy a $30,000 car. The dealer says, "Good news! We got your payment down to $650/month for 72 months."
Calculated Rate: ~16.2%
Verdict: That is a TERRIBLE rate. Standard rates might be 6-8%. The dealer "lowered" the payment just by stretching the loan to 6 years, but is charging you double-digit interest.
Example 2: The "0%" Furniture Loan
Scenario: A sofa is listed for $2,000 cash, OR you can pay $100/mo for 24 months ($2,400 total) with "Special Financing."
Calculated Rate: ~18.2%
Verdict: It's not 0%. They built $400 of interest into the payment plan.
Reference Tables
Average Interest Rates (Benchmark)
Typical rate ranges for good credit (700+).
| Loan Type | Typical Rate | Term |
|---|---|---|
| Mortgage (Fixed) | 6% - 8% | 30 Years |
| New Auto Loan | 5% - 9% | 60 Months |
| Used Auto Loan | 8% - 13% | 60 Months |
| Credit Card | 20% - 29% | Revolving |
Why use this calculator?
- Negotiation: When you know the real rate, you can say "My credit union offers 6%, can you beat that?"
- Transparency: See exactly how much money is vanishing into interest payments.
Frequently Asked Questions
Frequently Asked Questions
Interest Rate vs APR?
Interest Rate is the math used to accrue daily charges. APR (Annual Percentage Rate) includes that interest PLUS fees (origination fees, closing costs). APR is the true cost of the loan.
Why is my rate negative?
If the Total of Payments (Monthly Payment x Months) is less than the Loan Amount, you are effectively paying a negative interest rate (or the lender is losing money). This usually indicates a typo in your inputs.
What is Risk-Based Pricing?
Lenders charge higher rates to people with lower credit scores. If your calculated rate seems high, check your credit report for errors that might be dragging your score down.
Fixed vs Variable?
A Fixed Rate stays the same forever. A Variable Rate fluctuates with the economy. This calculator assumes a Fixed Rate for the calculation.
Key Terms & Definitions
Disclaimer: This tool estimates the nominal annual interest rate based on standard amortization formulas. It does not account for complex compounding variations or specific lender fee structures.
Last Updated: January 2026