What is the effective annual rate?

The Effective Annual Rate (EAR) is the rate of interest actually earned on an investment or paid on a loan as a result of compounding the interest over a given period of time.

What is effective annual interest rate (AER)?

It is also called the effective interest rate, the effective rate, or the annual equivalent rate (AER) . The effective annual interest rate is the true interest rate on an investment or loan because it takes into account the effects of compounding. The more frequent the compounding periods, the higher the rate.

What is an effective interest rate?

The effective interest rate is one that takes into account how often your money compounds in a year for an investment or loan. If you borrow money, the effective annual rate is usually higher than if you had only compounded the item annually. The more often your interest compounds, the greater your interest payments will be each year.

What is an effectual annual interest rate?

The effectual annual interest rate is a useful way of evaluating the actual return on investment and ascertaining the interest expense paid on a loan. Borrowers need to have a solid understanding of the impact cost of debt has on their business, as it will impact their profitability and solvency.