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EIR tells about the total amount one need to pay when apply for loan. This tells the complete amount one have to pay while applying for loan and also helps people to compare various financial products which calculates interest rate on compounding basis. This formula will give answer to your question like how to calculate effective interest rate on a loan  as this term plays an important role while taking a personal loan.

Do interest rates confuse you? Need help with that car EMI calculation? Here is an article to break down the complex and drastic looking interest and EMI calculator formulas to let you know how to calculate interest rates on a loan and much more.  Interest is simply the proportion of money charged by the lender additional to principal sum. It is also called the cost of the loan.These interest rates depend on the lender, loan tenure, cibil score, etc.  For example - If a lender lends you an amount of 1000 rupees as a loan with 20% interest rate for a year, then, the interest is 20% of 1000 rupees, i.e., 200 rupees.  Principal  The actual amount of money borrowed.   Interest rate  The ratio of interest amount to the principal sum annually.   Time   It refers to the tenure of the loan.   Amount   It is the total repayment amount, i.e., sum of principal and interest of the loan.  How to calculate the interest ...