**Nominal interest rate**, is another concept in banking and finance that every borrower should know. Find out what such an interest rate is, how it differs from the real interest rate and how to calculate it.

## What is a nominal interest rate? Definition of the term

**Nominal** interest rate is the value of the interest rate expressed annually. A higher nominal interest rate means a higher amount of interest to be paid. However, the nominal interest rate does not take into account all the factors that affect the interest rate. To get the full picture, you should also pay attention to the real interest rate.

## Nominal interest rate vs. real interest rate

Nominal interest rate is the ratio of annual interest to the initial principal. This means that at a nominal interest rate of 5% per year, the amount of initial capital will increase by 5% per year. The **real** interest rate is the interest rate that takes into account all factors that can affect the interest rate, such as interest taxes, fees and margins.

Nominal interest rates are often confused with real interest rates because they are easier to understand and easier to compare. However, the real interest rate is a more accurate and reliable measure of the interest rate.

## How do you calculate the nominal interest rate?

The nominal interest rate is the ratio of the annual amount of interest to the equity. It is calculated by dividing the annual interest amount by the equity. Nominal interest rate is often confused with interest rate. The interest rate is the total cost of the loan, which includes the nominal interest rate, but also other costs, such as bank commission.

The nominal interest rate is important because it allows you to compare the cost of a loan at different banks. If two banks offer a loan with the same terms but different interest rates, the one with the lower interest rate will cost less. The nominal interest rate is also important because it affects the amount of the monthly loan installment. Loan installments are determined by the nominal interest rate, not the interest rate. Therefore, if you want to calculate your loan installment, you need to know the nominal interest rate. The nominal interest rate is also important for those who plan to take out a loan. Knowing the nominal interest rate, you can compare offers from many banks and choose the one that is best.

In conclusion, the nominal interest rate is very important. It is important for people who plan to take a loan, because it allows them to compare the offers of many banks and choose the one that is best. It is also important for people who already have a loan, because it affects the amount of the monthly installment.