An interest rate that does not take inflation or any other factors into consideration, as opposed to a real interest rate or an effective interest rate. In other words, this interest rate that is stated on a loan or any interest-bearing instrument or investment, without any adjustments to inflation, fees, premiums, discounts, etc. The nominal interest rate, also known as an annual percentage rate or APR, is usually expressed as a periodic rate multiplied by the number of periods per annum.
The nominal interest rate reflects the percentage increase in an amount of money a lender extends to a borrower for the latter’s use. For example, a customer that borrowed $100 from a bank one year ago at 6% interest would entail repayment of the $100 borrowed in addition to $6 in interest— making a total of $106 at the end of the loan term.
This rate is also known as money interest rate.
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