It is also a good tool for comparing loans to see which one will end up costing you more.įor example, if you have to select from two loans with the same interest rate but one compounds more often, you will see that after calculating the AER, the loan that compounds more end up costing you more. Let’s see how the AER is used to compare investments and loans:Ĭalculating the AER of loans or credit cards is good to widen your knowledge of how much debt you will repay by the end of a year. This helps in determining which loan or savings options will suit your needs. The AER is an accurate way of understanding how much earning you get by the end of the year or what total amount you have to repay. How Does the Annual Equivalent Rate (AER) Work? If you cannot figure out how to calculate, several financial calculators are available online to help you. As long as you make yourself completely familiar with the components, you should be good to go. Calculating the AER can be intimidating with the complicated formula if you are doing it for the first time.
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