Next video:
Loading the player...

Interest rates are the primary yardstick for measuring how much return lenders will get. However, the stated interest rate on a loan, sometimes called the nominal rate, doesn’t tell the whole story.
Because of inflation, the purchasing power of every dollar lent out to an individual or a business tends to decrease over time. Lenders take this into account by calculating what’s known as the real interest rate.

Related Articles
  1. Investing

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  2. Personal Finance

    Shopping for Mortgage Rates

    Are you planning on buying a home? Here is a step-by-step guide to find and lock in the best rate for a mortgage.
  3. Personal Finance

    How Banks Set Interest Rates on Your Loans

    Are you planning on getting a loan from bank? Here is the information you need know on how banks set the interest rates to get the best possible deal.
  4. Personal Finance

    How to Pick the Right Lender When Refinancing a Mortgage

    Refinancing your mortgage has never been easier with the range of lenders and access to information that are available to you.
  5. Retirement

    When Are Mortgage Lenders Better Than Banks?

    Individuals seeking a mortgage loan should consider factors or circumstances that may make a mortgage lender a better choice than a traditional bank.
  6. Personal Finance

    Getting a Loan Without Your Parents

    Use these five things to finance your dreams without banking on a second signature.
  7. Trading

    The International Fisher Effect: An Introduction

    The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates.
  8. Personal Finance

    Personal Loan Rates: 6 Ways to Find the Best Deals

    Terms can vary tremendously, so you better shop around, both in person and online.
  9. Investing

    How Do Interest Rates Affect the Stock Market?

    Interest rates can have a complicated ripple effect through financial markets. Here's what you need to know.
  10. Investing

    Commercial real estate loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
Hot Definitions
  1. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  2. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  3. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  4. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
  5. Restricted Stock Unit - RSU

    A restricted stock unit is a compensation issued by an employer to an employee in the form of company stock.
  6. Monero

    Monero is a digital currency that offers a high level of anonymity for users and their online transactions.
Trading Center