Effective rate versus nominal, what you actually pay
Two loans at the same rate can differ by thousands. The difference is in the fees, and only one of the figures shows them.
Updated 2026-09-05
The nominal rate is the interest rate itself. The effective rate also includes the arrangement fee, invoice fees and the compounding of interest, expressed annually. A quick loan of SEK 20,000 over twelve months at 22% nominal, with a SEK 588 arrangement fee and SEK 57 a month, lands above 40% effective, almost half the cost sits outside the rate.
The fees are not small
An invoice fee of SEK 59 a month sounds negligible. On a loan of SEK 30,000 over three years it is SEK 2,124, more than a couple of percentage points of interest. The arrangement fee bites hardest on small loans over short terms, because the whole amount is paid up front but spread over few payments.
This is why the Consumer Credit Act requires the effective rate in all credit marketing. It exists precisely so a lender cannot move cost from the rate into the fees and look cheaper.
How it is calculated
The effective rate is the rate at which the present value of all your payments exactly equals the amount you received. There is no closed formula, it is solved numerically.
We never use the lender's advertised figure, because it almost always applies to a different amount and term than the one you chose. Instead the whole payment flow is modelled for your calculation. The full model is published on the method page.
A short term raises the effective rate, and makes the loan cheaper
This confuses people. Shorten the term and the arrangement fee is spread over fewer months, so the effective rate rises. At the same time you pay interest for less time, so the total cost falls.
So: compare effective rates between lenders at the same term, but compare total cost when choosing the term. They are two different questions.
Common questions
Can the effective rate be lower than the nominal?
No. On a fee-free loan the effective rate is marginally higher because of monthly compounding, 8.00% nominal gives 8.30% effective. Lower is mathematically impossible.
Why does the lender show a different figure?
The lender's representative example uses one fixed amount and term, often SEK 150,000 over five years. Choose different figures and the effective rate changes. We recalculate it for your case.
Does the rate cap apply to the effective rate?
No, the 22.00% cap applies to the nominal rate. The effective rate may exceed it, because fees are included in it. There is however a cost cap: total credit costs may never exceed the amount borrowed.