Calculate Effective rate of the loan

Question

Example: 10,000 EUR Interest Rate is: 6.96%, Additional payment 0.05% of the loan amount, and the effective loan rate is 7.34% says bank.

My question is, how did they come to 7.34% as the effective rate. What is the formula to calculate in excel.

How often is interest compounded? – ncmathsadist Apr 17 '15 at 13:22 — ncmathsadist, Apr 17 '15 at 13:22

score 0 · Answer 1 · answered Apr 17 '15 at 18:17

I get this. You receive $9,995$ as loan proceeds but owe $10,000$. So we compound the interest monthly on the 10K. Here is what you owe at the end.

>>> owed = 10000*(1 + .0696/12)**12
>>> owed
10718.63730040249

Now divide out the loan proceeds as follows

>>> owed / 9995
1.0723999300052516

I get an effective rate of 7.24%.

1 Answers1