Short answer
The nominal rate is the interest rate itself. The effective rate (effektiv ränta, the APR) also includes setup fees, notice fees and monthly compounding, converted to a yearly rate. A quick loan of SEK 20,000 over twelve months at 22% nominal, with a SEK 588 setup fee and SEK 57 a month, comes to almost 40% effective. A little over a third of the cost sits outside the interest rate.
The fees decide the difference
A notice fee of SEK 59 a month sounds negligible. On a loan of SEK 30,000 over three years it adds up to SEK 2,124, more than a couple of percentage points of interest. The setup fee hits small loans and short terms hardest, because it is charged in full however small or short the loan.
That is why the Swedish Consumer Credit Act requires the effective rate in all credit marketing. It exists so that a lender cannot move cost from the interest rate into fees and look cheaper.
How the effective interest rate is calculated
The effective rate is the interest rate at which the present value of all your payments exactly equals the amount paid out to you. There is no closed formula; it is solved numerically.
In the comparison we recalculate the effective rate for the amount and term you choose, because a lender's advertised figure almost always applies to a different amount and term. How we calculate is explained on the How we compare page.
A short term makes the effective rate higher, and the loan cheaper
This confuses many people. Shorten the term and the setup fee is spread over fewer months, so the effective rate rises. At the same time you pay interest for less time, so the total cost falls.
The conclusion: compare effective rates between lenders at the same term, but compare total cost when you choose the term. They are two different questions.
