Interest Rates, Yearly to Monthly, Monthly to Yearly
September 13th, 1997, Last updated 26 April 2006
Canadian Business people have a problem complying with Canadian law when charging interest on Accounts Receivable. Most of the computer programs and spreadsheets that we use are made in the USA, for USAsians, and do not comply with Canadian Law. Canadian law requires interest to be ALWAYS stated as a yearly effective rate for comparison purposes. See the Canadian Interest Act. Every invoice, bill or statement must contain an express statement of the effective annual rate being charged. Canadian Banks, Visa, MasterCard and others advancing credit are using the USA method, which, as you will see, is not correct in law or in fact.
Most businesses charge interest each month on Accounts Receivable, and the computer program may ask for the monthly interest rate or the annual interest rate. See Charging interest on your accounts receivable.
If that page does not have the rates you wish to charge you can calculate the monthly or yearly rates below.
Interest must be stated on your invoices and statements as an effective annual rate.-
The rate stated must be the rate charged.
-
Monthly interest is NOT the annual rate divided by 12.
Annual or Monthly?
Notes
Use the default values to confirm that the monthly interest factor is the same
as in the head note. Run it to make sure the mortgage is paid in 240 periods. If it
works OK for 12%, $12,000, 240 payments it is correct for other combinations.
But no guarantees, USE AT YOUR OWN RISK, whatever the risk may be.
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