Interest rates in LoanCompass are monthly
Every interest rate in LoanCompass is a rate per month, for every repayment plan. Entering 2 means 2% per month — roughly 26.8% a year compounded, not 2% a year. This is the single most common thing to get wrong when recording a private loan, and it is off by more than a factor of ten.
Why monthly rather than annual
Bank products are quoted annually because their terms run for years. Loans between people usually do not: they run for a few weeks or a few months, and they are agreed in the words “five percent a month” or “two points a month”. Quoting the same loan annually would mean converting a figure at the moment of entry, which is exactly where the mistake happens.
So the field takes what you agreed. If the arrangement is a monthly rate — and in private lending it almost always is — you type it in unchanged.
Converting an annual rate
If the rate you agreed is annual, divide before you enter it. Dividing by 12 gives the nominal monthly rate, which is how nearly every loan agreement in practice defines it:
- 12% a year → enter 1
- 18% a year → enter 1.5
- 24% a year → enter 2
- 6% a year → enter 0.5
Dividing by 12 is the nominal conversion, not the compounded one. 1% a month compounds to 12.68% a year, not 12%. For a loan running a year or less the difference is small and the nominal figure is what the two of you almost certainly meant; for anything longer, be explicit with each other about which you agreed before you record it.
What the rate is charged on
The rate is a percentage; what it is a percentage of is decided by the repayment plan, and that matters more than the rate itself:
- On amortization, diminishing balance and fixed principal + interest, it is charged each month on the balance still outstanding — so it falls as the loan is repaid.
- On add-on, bullet and interest-only, it is charged on the full original principal for the whole term, whatever has been repaid.
The same 2% costs two different amounts
$10,000.00 for 12 months at 2% a month costs $1,300.00 in interest on a diminishing-balance plan and $2,400.00 on a flat rate. Identical rate, identical term, $1,100.00 apart.
Zero is a valid rate
Leave the rate empty or set it to 0 and no interest is ever charged — not on the schedule, and not after the due date passes. The loan is then a plain record of an amount owed, split across the months if you gave it a plan. Most loans between family are recorded this way, and there is nothing second-class about it: the schedule, the balance, the reminders and the borrower's own view all work identically.
Charges are separate from interest
Interest accrues from the rate. A charge is a one-off amount you add by hand with a reason attached — a late fee, a transfer cost you covered, something you agreed to add. Charges never compound and are never multiplied by the rate; they sit alongside the principal as their own obligation and are settled from repayments in their own right.
A word on what is legal
Many countries cap the interest a private individual may charge, and some require lending above a threshold to be licensed. LoanCompass records whatever rate you type and takes no view on whether you are allowed to charge it. Recording a rate here is not advice that it is lawful or enforceable where you live — if you are charging meaningful interest, check your local rules first.
Keep reading
- Repayment plansThe six monthly plans a loan can use, what each one does to the payment size, and how to pick between them.
- OverpaymentsWhere the extra money goes when someone pays more than the installment, and what it does to the schedule.
- Late paymentsHow interest accrues on an overdue loan, once per month, and why it compounds on the balance rather than the principal.
- Recording loans and repaymentsAdding a person, writing down a loan you already made, logging repayments, and correcting a mistake.
Stop recalculating this by hand
LoanCompass keeps the schedule, the repayments and the running balance for every loan you have made, so the figures on this page stay current without you rebuilding them. It is free while in early access, and no money moves through it.