Effektiv ränta (effective interest rate)
The effective interest rate (effektiv ränta) is the true yearly cost of a credit, with every fee folded in and expressed as one annual percentage. It stacks the setup fee, invoice fee and any annual fee on top of the ordinary (nominal) rate. By law it must always be shown, so it is the number you compare with.
Effective vs nominal rate
The nominal rate is just the interest on the loan itself. The effective rate adds everything else you pay to hold the credit: the fee when the loan is set up, the fee on every invoice, any annual fee. That is why the effective rate is always higher than the nominal one, and the gap is widest on small, short credits where the fixed fees weigh heavily.
Why it is the one to compare
A loan with a low nominal rate but fat fees can end up costing more than one with a higher nominal rate and no fees. The effective rate is the only thing that makes two offers truly comparable, because it bakes both interest and fees into a single number. If you are unsure, look at the effective rate, not the tempting nominal one.
On credit cards and instalments
On short credits, like an instalment plan or a small quick loan, the effective rate can look absurd, sometimes several hundred percent. That is because a fixed fee of a few hundred kronor becomes enormous when it is annualised on a small amount over a short time. There the effective rate says less than the actual cost in kronor, so check both the percentage and the kronor.
If you pay the whole credit-card bill on time within the interest-free period you pay no interest at all, and then the effective rate does not matter. It only starts to bite when you pay in instalments or let a balance sit.
Where it shows up
- Guide: Credit cards
- Budget calculator