Banks calculate the interest rates for every loan type differently. Some by the outstanding at begining of month, some at end of the month, some by year end, etc.
This basically makes it very tough for us folks to
1) compare loans against each other, as the minute differences play a big part
2) know exactly how much interest one will be paying which can be very different if the interest is compounded monthly versus yearly
By law, lenders are now required to publish the Effective Interest Rate (EIR) for all their loans, which is the aggregated interest per annum for any loan. This makes it easier for us borrowers to do apple to apple comparisons.
Without further complicating the explanation, if you are looking to compare loans, always compare the EIR instead of the published rates.
