Understanding Interest Rates
It’s all about interest rates! You’ve come to the right place to learn more about how interest rates are really calculated and how to understand the difference between quoted prices and transparent prices.
Below you’ll find a list of resources that are useful in understanding interest rates. Look through our compilation of tools, presentations, papers and blog posts. All resources have been coded according to their complexity:
- a green box indicates basic information,
- a yellow box will provide you with a resource that goes beyond the basics, and
- a red box is a comprehensive or advanced article on interest rates.
Use these links to jump directly to what you’re looking for, or simply scroll down to view our full library:
Highlighted Items
Tools
Calculating Transparent Prices (Intermediate Level)
OUR MOST POPULAR RESOURCE! Ever wonder how much you’re paying, or charging, on a given loan? This Excel-based tool allows users to input different loan terms and see how they affect Annual Percentage Rate (APR) and Effective Interest Rate (EIR), total cost of credit, cash flow and repayment schedule. Using an interactive approach, this tool helps illustrate the abstract, often confusing concepts underlying APR and EIR. See more
Presentations and Videos
What is the Interest Rate? (Intro Level)
Why are interest rates higher in microfinance than in the traditional financial sector? Are we operating in an opaque pricing environment? What factors affect the interest rate? And how much are clients really paying? These are some of the questions addressed by a range of stakeholders at the SEEP conference in November 2008. Watch this video
Transparent Pricing in Microfinance (Intro Level)
This presentation explains how difficult it can be to choose between different loan products and the downward spiral toward non-transparent pricing. Featuring screenshots from the Understanding Interest Rates Tool, this presentation is a good companion to the Excel-based “Understanding Interest Rates” tool. View this presentation
Papers
Understanding APR Calculations (Intermediate Level)
While many may understand the basic concepts behind Annual Percentage Rate (APR), few can explain the calculations used to turn these concepts into a number. This paper proves a step-by-step overview of the process of calculating an APR, including the conceptual significance behind each step. Download
The Challenge of Understanding Pricing of Microloans (Intermediate Level)
This paper uses the example of the price of Banco Compartamos’ loan product to explain how interest rate calculations work and why there is so much confusion over what true prices really are. As the APR has been more frequently discussed in microfinance, despite being less accurate than the EIR, this article explains the APR, leaving a discussion of the EIR for a future article. Download
From the Blog
What is the true cost of a loan? And why isn’t it enough to simply tell the borrower the total cost of the loan? This blog post explains what the true cost to the borrower really means, why the total cost of credit may be misleading and how the APR approach allows you to work with a full understanding of the real cost to the borrower. Read this post
Our mission to provide transparent pricing data puts interest rate calculations at the heart of MFTransparency’s work. This post offers a behind the scenes look at how we calculate the interest rates we publish on our website. Read this post
For the truly technical, this post describes an alternative method to the Excel-based formulas for calculating interest rates. In this post Tim Langeman, our very own Website Manager, explains how calculus and programming can replace Excel in interest rate calculations. Read this post
Useful Links
Check back in the future for links to information on other websites.
Suggestions
If you have suggestions for additional information to post on this page, write to us at resources@mftransparency.org.