Quick reference
Why APR needs converting to a monthly rate
APR — Annual Percentage Rate — is the cost of credit expressed as an annual figure. But on a loan or credit card, interest is not charged once per year. It is charged every month on the outstanding balance. To know the actual interest amount added to your balance each month, you must convert the annual rate into its monthly equivalent.
This conversion is not simply cosmetic. The monthly rate is what determines the actual interest charge on your statement each period. It is also the rate used in the amortization formula that calculates your monthly repayment amount. If you use the wrong conversion method, your calculated interest figure will be incorrect — either slightly or significantly depending on the rate and the method.
Method 1 — simple division
Method 2 — compound method (precise)
Which method to use and when
The simple division method (APR / 12) is used for: standard consumer loans in the EU and UK where the periodic rate is simply the annual rate divided by the number of payment periods, mortgage repayment calculations, and personal loan amortization schedules.
The compound method ((1 + APR)^(1/12) - 1) is used for: credit cards where daily or monthly compounding means the effective annual rate is higher than the stated APR, investment return calculations where you need the monthly equivalent of an annual compound return, and any situation where you need to reverse-engineer a monthly rate from a known compound annual rate.
The difference between the two methods is small at low rates but becomes meaningful at higher rates. At 6% APR: simple gives 0,5000% per month, compound gives 0,4868% per month — a difference of 0,0132 percentage points. At 24% APR: simple gives 2,0000% per month, compound gives 1,8265% per month — a difference of 0,1735 percentage points. On a large credit card balance, this difference accumulates over time.
Worked examples
Monthly rate = 6% / 12 = 0,5% = 0,005. Monthly interest = 10.000 x 0,005 = 50,00. This is the interest portion of the first month's payment on a 10.000 loan at 6% APR. As the balance reduces with each payment, the monthly interest charge falls proportionally.
Monthly rate = (1 + 0,199)^(1/12) - 1 = (1,199)^0,08333 - 1 = 1,015544 - 1 = 0,015544 = 1,5544%. Monthly interest = 3.000 x 0,015544 = 46,63. Using simple division instead: 19,9% / 12 = 1,6583%, giving 49,75 per month. The simple method overstates the monthly charge by 3,12 in this case.
Compound check: (1 + 0,015544)^12 - 1 = (1,015544)^12 - 1 = 1,19900 - 1 = 0,19900 = 19,90%. The compound monthly rate correctly reverses to the original APR when compounded 12 times, confirming the conversion is exact.
Convert APR to Monthly Rate
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APR to monthly rate conversion table — simple and compound methods
| APR | Simple (APR / 12) | Compound ((1+APR)^(1/12)-1) | Difference |
|---|---|---|---|
| 3% | 0,2500% | 0,2466% | 0,0034% |
| 5% | 0,4167% | 0,4074% | 0,0093% |
| 6% | 0,5000% | 0,4868% | 0,0132% |
| 8% | 0,6667% | 0,6434% | 0,0233% |
| 10% | 0,8333% | 0,7974% | 0,0359% |
| 12% | 1,0000% | 0,9489% | 0,0511% |
| 15% | 1,2500% | 1,1715% | 0,0785% |
| 18% | 1,5000% | 1,3888% | 0,1112% |
| 20% | 1,6667% | 1,5309% | 0,1358% |
| 24% | 2,0000% | 1,8265% | 0,1735% |
| 36% | 3,0000% | 2,6263% | 0,3737% |
Common mistakes
Methodology
Simple method uses linear division: monthly rate = APR / 12. Compound method uses the 12th root: monthly rate = (1 + APR)^(1/12) - 1. All percentage values in the table are rounded to 4 decimal places. The compound method is mathematically exact — compounding the monthly rate 12 times returns precisely the original APR.
The method used by your lender is specified in your credit agreement. EU law requires disclosure of the periodic rate alongside the APR.
Convert any APR to a monthly rate
Enter any APR to see both the simple and compound monthly equivalent rates with full working shown.
Frequently asked questions
Formula based on standard mathematical and financial methods. Results are for informational purposes. Last reviewed May 2026. Version 2.