Effective Annual Interest Rate: How to Compare Loans Correctly

What is the effective annual interest rate?

The effective annual interest rate (also: effective interest rate) represents the actual annual cost of a loan as a percentage. Unlike the nominal interest rate, it includes all mandatory ancillary costs such as processing fees, administrative costs, and other charges. It enables an objective comparison of different loan offers.

Difference between nominal and effective annual interest rate

The nominal interest rate is the pure interest rate, without ancillary costs. The effective annual interest rate includes all costs. The effective annual interest rate is therefore always higher than or equal to the nominal interest rate. For comparing loan offers, only the effective annual interest rate is relevant.

Legal cap in Switzerland

The Consumer Credit Act (KKG) sets the maximum effective annual interest rate in Switzerland at 10%. This cap applies to all consumer loans. Loan offers exceeding this rate are legally prohibited. The cap is regularly reviewed by the Federal Council and can be adjusted.

How to compare correctly

Always compare the effective annual interest rate, not the nominal interest rate. Make sure to use the same term for comparisons. Consider optional additional costs such as residual debt insurance, which do not have to be included in the effective annual interest rate. Use our loan calculator for a quick comparison.

Frequently asked questions