Effective Interest Rate (EIR) Calculator
Calculate an IRR-based effective annual rate (EIR) from a loan's actual cash flows, including upfront fees. Enter the loan details to see how a flat-rate quote translates into the effective cost the borrower really carries.
The calculated EIR is 31.8%, compared with the quoted flat rate of 10.0%. The difference occurs because the flat-rate calculation applies interest to the original principal while the borrower receives a smaller net amount once upfront fees are deducted.
| Period | Borrower cash flow |
|---|---|
| Disbursement | +950,000 |
| Month 1 | −91,667 |
| Month 2 | −91,667 |
| Month 3 | −91,667 |
| Month 4 | −91,667 |
| Month 5 | −91,667 |
| Month 6 | −91,667 |
| Month 7 | −91,667 |
| Month 8 | −91,667 |
| Month 9 | −91,667 |
| Month 10 | −91,667 |
| Month 11 | −91,667 |
| Month 12 | −91,667 |
- ✓ Upfront fees
- ✓ Interest
- ✓ Loan term
- ✓ Repayment schedule
- ○ Insurance
- ○ Taxes
- ○ Other recurring fees
- ○ Late-payment charges
- ○ Optional services
How the calculation works
The calculator builds the cash-flow stream the borrower actually experiences — receiving the principal minus any upfront fees, then repaying a level flat-rate installment each month — and solves for the monthly rate r that sets the present value of those repayments equal to the net amount disbursed.
Show the calculation formula
Net disbursed = Σ Payment / (1 + r)ᵗ
The monthly IRR r is found by bisection, then annualized by compounding: EIR = (1 + r)¹² − 1. The net amount disbursed is the principal minus upfront fees — the money the borrower actually receives.
This is an educational calculation only; it does not constitute regulatory or compliance advice.
EIR vs APR
APR and EIR both aim to express a loan’s annual cost, but they annualize differently. This tool reports the EIR — the compounded, IRR-based effective rate on the net amount disbursed. APR conventionally annualizes the periodic rate by simple multiplication (no compounding), which reads slightly lower. Because the two are not interchangeable, this page shows only the EIR; a dedicated APR view may follow.
Flat rate vs reducing balance
A flat rate charges interest on the original principal for the whole term, while reducing-balance interest is charged only on the falling outstanding balance. At the same headline percentage the flat method costs more, which is a large part of why a flat quote’s effective rate is so much higher. To see the shilling difference on your own loan, use the Flat vs Reducing-Balance Comparison.
FAQ
What is EIR?
The Effective Interest Rate is the annual cost of a loan implied by its actual cash flows — the net amount the borrower receives and every repayment made — expressed as a single compounded annual percentage. It is almost always higher than a quoted flat rate.
Why is a 10% flat loan's effective rate much higher?
Under a flat rate you keep paying interest on the full original principal even as your balance falls toward zero. Because you only have use of the average (roughly half) of the principal over the term, the effective annual cost works out well above the quoted flat rate — and upfront fees push it higher still.
How do upfront fees change the EIR?
Fees deducted at disbursement mean the borrower receives less than the principal but still repays the full amount plus interest. The effective rate is measured on the smaller net amount actually received, so fees raise it. Enter your real arrangement or processing fees to see the effect.
What is the difference between EIR and APR?
Both express an annual cost, but by different conventions. This tool reports the EIR: it solves the monthly internal rate of return (IRR) on the net amount disbursed, then annualizes by compounding — EIR = (1 + monthly IRR)^12 − 1. APR typically annualizes the periodic rate by simple multiplication without compounding, so it reads slightly lower. This calculator shows the compounded EIR, not APR.
How is the EIR solved here?
By finding the monthly IRR that makes the present value of all repayments equal the net amount disbursed (principal minus upfront fees), then compounding it to an annual figure with (1 + IRR)^12 − 1 — not a simple ×12.
What costs are included?
The estimate includes the interest, the loan term, the repayment schedule and any upfront fees you enter. It does not currently include insurance, taxes, other recurring fees, late-payment charges or optional services — add those separately when comparing real offers.
Is this official BOT or consumer-protection guidance?
No. This is an educational calculation using the standard IRR-based EIR method. It does not constitute regulatory or compliance advice and is not a loan offer or disclosure.
Price and disclose loans on one platform.
Ustawi’s Core Lending app prices loans on reducing-balance interest and generates clear repayment schedules, while the Compliance app helps you keep client-protection and disclosure discipline as you grow. See how transparent pricing and servicing fit together.