Sometimes a loan offer tells you the payment but not the rate, and sometimes you want to know how fast an investment really grew. This calculator handles both. Choose the loan option if you know the amount borrowed, the monthly payment and the term. Choose the investment option if you know the starting value, the ending value and the number of years.
For a loan, the tool searches for the interest rate that makes your payment fit the loan exactly. It then shows the yearly rate, the monthly rate, the effective yearly rate and the total interest you will pay. This is a good way to check a dealer or lender offer and find out the real cost of borrowing.
For an investment, the tool shows the average yearly growth rate, also called the compound growth rate, along with the total change and the time it takes to double. This smooths out the ups and downs so you can compare different investments fairly. If the payments in the loan option add up to less than the amount borrowed, the tool will warn you, because no real rate could produce that.
For a loan, the monthly payment formula is: payment = loan x r / (1 – (1 + r) raised to minus n). The rate r cannot be isolated with simple algebra, so the calculator tries rates and keeps narrowing the range until the payment matches yours. The yearly rate is r x 12.
For an investment, the yearly growth rate is: (ending value / starting value) raised to 1 / years, minus 1. The doubling time is the natural log of 2 divided by the natural log of (1 + rate). The rule of 72 is a quick check that divides 72 by the rate in percent.