What do I input into Actual Interest Paid?

The Actual Interest Rate Paid is a key metric for evaluating loan returns that focuses specifically on the annualized return.

It represents the annualized rate of return received from a loan, accounting for  time, and helps standardize comparisons across different loans. Unlike ROI (Return on Investment), which measures total return, the Actual Interest Rate Paid focuses specifically on the annualized return.

Key Features of the Actual Interest Rate Paid

1. Annualized Return:

   • Converts periodic returns (e.g., monthly or quarterly) into an annual rate.

   • Provides a consistent way to evaluate loan performance over time.

2. Reflects True Loan Returns:

   • Measures the actual rate received by the lender, including compounding effects.

3. Different from ROI:

   • ROI shows the total return on an investment relative to the principal.

   • Actual Interest Rate Paid focuses on the time-adjusted annual rate of return.

How It Works

For example, if a lender receives interest payments semi-annually at a periodic rate of 5%, the annualized rate accounts for compounding over the year. This ensures the return reflects the true yearly performance of the loan.