Loan adverts usually show the nominal annual rate: “from 28% a year”. But that figure doesn’t tell you what the loan will actually cost. For that there is another measure — FİFD, the effective annual interest rate.
What FİFD is
FİFD expresses every mandatory payment on a loan — interest, commission and any other costs set out in the agreement — as a single annual rate. In plain terms, it is the loan’s “true price”.
The nominal rate only reflects interest on the outstanding balance. FİFD adds two more factors:
- the commission charged when the loan is issued;
- the fact that you repay monthly, so money comes back in instalments over the year.
Why FİFD is higher than the nominal rate
Say the nominal rate is 28% a year with no commission. Even then FİFD is not 28% but roughly 31.89%. The reason is monthly compounding: the monthly rate is 28 / 12 = 2.333%, and applied twelve times a year it gives (1 + 0.02333)¹² − 1 ≈ 31.89%.
The second reason is commission. It is deducted when the loan is issued, so you actually receive less money but repay the full amount.
Example: the effect of commission
Loan: AZN 10,000, 24 months, 28% a year, annuity. The monthly payment is AZN 548.88 whatever the commission. FİFD changes like this:
- 0% commission — FİFD ≈ 31.89%;
- 1% commission — FİFD ≈ 33.29%;
- 2% commission — FİFD ≈ 34.73%;
- 3% commission — FİFD ≈ 36.21%.
A 3% commission adds about 4.3 percentage points. On shorter loans the effect is stronger because the commission is spread over fewer months. Take AZN 3,000 for 12 months at 32%: with a 1% commission FİFD ≈ 39.84%, with 3% it is ≈ 45.52%.
How FİFD is calculated
FİFD is calculated using the internal rate of return (IRR). Put simply, we look for the annual rate at which the present value of all your future payments equals the amount you actually received.
- 1Work out the amount received: loan amount minus commission.
- 2List all monthly payments.
- 3Find the monthly rate at which the discounted payments add up to the amount received.
- 4Convert it to an annual rate: (1 + monthly rate)¹² − 1.
The Finex Kredit calculator does this automatically and shows FİFD next to the monthly payment.
Comparing loans
When choosing between offers, compare FİFD, not the nominal rate. A loan with a low rate and a high commission can end up costing more. The fair comparison is FİFD for the same amount and the same term.
Commission at Finex Kredit
Commission on Finex Kredit loans is 1–3%. For example, according to earlier published terms, FİFD on the agricultural loan was in the 30–38% range. The exact FİFD for a specific loan is given after your application is reviewed, together with the final terms.
Key points
- FİFD is the real annual cost of a loan and is almost always above the nominal rate.
- Commission doesn’t change the monthly payment, but it raises FİFD.
- The shorter the term, the bigger the effect of commission on FİFD.
- Compare offers by FİFD for the same amount and term.
Which costs are included
FİFD includes every mandatory payment the borrower makes to obtain and use the loan: interest, the issuance commission and any other mandatory costs set out in the agreement. Costs the borrower chooses to incur, which aren’t required to get the loan, are usually not included.
That’s why it’s worth asking for a full list of payments before signing and checking which costs the FİFD covers.
How the term affects FİFD
Commission is charged once, but its weight is spread over the whole term. So the same commission raises FİFD more on a short loan. For AZN 10,000 at 28% with a 3% commission, FİFD is about 36.21% over 24 months and about 34.95% over 36 months.
Frequently asked questions
Does FİFD change the monthly payment? No. The payment is based on the nominal rate; FİFD shows the loan’s overall cost.
Why is FİFD above the nominal rate even without commission? Because interest is applied monthly, which compounds over a year.
Where can I see FİFD? The calculator shows it next to the payment, and the final FİFD is stated in your agreement.
To see FİFD for your own loan, choose the amount, term and rate in the calculator — the result appears instantly.
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