Effective Interest Rate (EIR) Calculator

Effective Interest Rate Calculator

Choose compounding to get the effective yearly rate, or flat rate to see the equivalent reducing-balance rate of your loan.

This result is an estimate only. Check with your bank or the relevant authority before making decisions.

How it is calculated

Compounding: effective rate = (1 + rate ÷ 100 ÷ n)^n − 1, where n is the number of times interest compounds a year.

Flat rate:

Monthly instalment on a notional RM1,000 loan = (1,000 + 1,000 × rate ÷ 100 × years) ÷ (12 × years)
Find the monthly rate r (bisection, 200 iterations) at which the present value of those instalments equals RM1,000
Effective rate = r × 12 × 100, the nominal yearly rate on a reducing balance

EIR shows the true cost of a flat-rate loan. Malaysian lenders disclose the EIR in the Product Disclosure Sheet.

Worked example

12% compounded monthly: 12.68% a year
3% flat rate over 9 years: 5.50%, the same figure as on the car loan calculator page
6.5% flat rate over 5 years: 11.68%

Why your number may differ

The figure in your Product Disclosure Sheet is the official reference. This calculator works out the rate only and does not include fees or other charges.

Frequently asked questions

What is the effective interest rate (EIR)?

EIR shows the true cost of a flat-rate loan. Malaysian lenders disclose the EIR in the Product Disclosure Sheet.

Why is a 3% flat rate so much higher?

A flat rate is charged on the original loan for the whole tenure, even though the balance falls. Over 9 years, a 3% flat rate is about 5.50% on a reducing balance.

What is the difference between nominal and effective rates?

When interest compounds more than once a year, the effective yearly rate is slightly higher than the nominal rate.