Enter the principal, the monthly payment, and the term — this solves backward for the interest rate that makes those three numbers consistent.
Every other loan calculator runs the amortisation formula forwards: give it a balance, a rate and a term, and it returns a payment. This one runs it backwards, and that turns out to be a genuinely harder problem — the rate appears inside the formula twice, once linearly and once inside a power, and there is no closed-form way to rearrange it to put the rate on its own.
So the calculator does what lenders' own software does: it guesses. It brackets the answer between 0% and 600% a year, tries the midpoint, sees whether the resulting payment is too high or too low, and discards half the range. A hundred rounds of that narrows the answer far beyond the precision anyone needs. The result is exact to display precision, but it is found by converging on it rather than by deriving it.
These are the figures the calculator returns for its defaults:
A useful sanity check sits underneath: at 0% interest the payment on $20,000 over 60 months would be $333.33. The gap between that and $400 — $66.67 a month — is the interest, averaged across the term. If a quoted payment is only a little above the zero-interest figure, the rate is low no matter what the paperwork implies.
Any time someone quotes you a payment instead of a rate, which is more often than it should be:
One limit worth stating plainly: what comes back is the nominal interest rate implied by those three numbers, not an APR. APR additionally folds in arrangement fees, broker fees and compulsory insurance, so where such fees exist the APR will be higher than the figure here. Two offers are only comparable on this basis if their fee structures match.
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.
Comparing a dealer rebate against a promotional APR? We computed the break-even across every rate and term. For the loan itself see the Car Loan Calculator or the Personal Loan Calculator, and how credit card interest actually works if the debt is revolving.