Enter the principal, the monthly payment, and the term — this solves backward for the interest rate that makes those three numbers consistent.
Whenever you already know the loan amount, the monthly payment, and the term, but the lender never told you the rate directly — a seller-financed sale, a private family loan, or a rent-to-own arrangement quoted purely as "this much per month for this many months" are all common cases. Working backward from those three numbers reveals the rate you're actually paying, which is exactly what this tool does.
Not quite. This tool solves for the note rate implied purely by principal, payment, and term — it has no visibility into fees. A true APR also folds in origination fees and other loan costs, so it's typically a little higher than the plain note rate for the same loan. For a rate calculation that accounts for fees directly, see the companion APR Calculator.
If your monthly payment multiplied by the term comes out less than or equal to the principal, there's no positive interest rate that fits — you'd be paying back less than (or exactly) what you borrowed, which is only mathematically possible at a zero or negative rate. This calculator flags that case with a warning instead of showing a misleading number.
It's mathematically exact for the standard fixed-payment amortization formula, so it should match a lender's quoted note rate closely as long as the loan compounds monthly with no extra fees rolled into the payment. Loans with balloon payments, fees folded into the payment, or unusual compounding schedules will differ from this simplified model — for the full payment breakdown on a known-rate loan, see the Loan Calculator.
Worked example: a $20,000 loan repaid at $400/month over 60 months. $400 × 60 = $24,000 total paid, so total interest = 24,000 − 20,000 = $4,000. Solving the amortization formula for the rate that produces exactly a $400 payment on $20,000 over 60 months gives a monthly rate of about 0.618%, or roughly 7.42% annually.