For instance, a bank may advertise one-year $10,000 personal loans available at a 4% interest rate. The nominal interest for this loan would be $10,000 multiplied by 4%, which equals to $400.

For example, with a nominal interest rate of 8%, a one-year loan of $1,000 will cost $80. At the end of the year, the borrower pays back $1,080.

Changing the loan amount in the calculator back to $200,000, and trying out a few interest rates, shows that an interest rate of 4.11% would produce that same $968 monthly payment.