The term "percentage rate" is most often used by financial institutions to describe the rate that is charged for borrowing a specific amount of money. The percentage rate is typically calculated over a yearly basis, and it includes any other costs associated with the loan. Stated in more general terms, your percentage rate tells you how much you are paying for each dollar borrowed. For instance, if your percentage rate has been calculated at 15%, you are paying 15 cents for every dollar borrowed.
Record the amount of money you are borrowing (including any additional costs, such as closing costs) and the number of months it is going to take you to pay off the loan.
Determine your monthly payments. If you are borrowing $500 over one year and your interest rate is 10%, your monthly payment would be $50.
Determine the total amount of interest you would pay in a single year on the loan. Using the example in Step 2, multiply $50 by 12 and subtract $500. The total interest would be $100.
Add the total interest to the loan cost to get the total loan cost. In our example, the total loan cost would be $600.
Divide the total interest by the total loan cost and multiply by 100 to get the percentage rate. In our example, the percentage rate would be 16.67%.