The periodic interest rate is the interest rate applied per compounding period (day, month, quarter). It converts the annual rate to the rate used in payment calculations. Monthly rate = Annual rate / 12.
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Pro Tip
Mortgage monthly rate is exactly APR/12. This is why the same APR produces different payments at different frequencies — monthly beats biweekly because of how the periodic rate is applied.
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Did You Know?
Credit card companies calculate interest daily using the DPR (Daily Periodic Rate = APR/365). A 20% APR credit card charges 0.0548% per day on the outstanding balance — which compounds to 22.13% EAR.
References
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