What is Nominal Interest Rate?
Quick Summary
The nominal interest rate (Sollzins) is the pure interest rate that a lender charges for providing the loan amount. It does not include ancillary costs such as processing fees and is therefore always lower than the effective interest rate (APR), which reflects the total cost of a loan.
Definition in Detail
The nominal interest rate – called Sollzins in German – is the interest rate that a bank or financial institution charges purely for providing capital. It indicates what percentage of the loan amount the borrower must pay annually as interest.
The German Price Indication Regulation (PAngV) requires that the nominal interest rate be disclosed in loan agreements and advertising. Important: The nominal rate does not include ancillary costs – for loan comparison, the effective interest rate (APR) is more meaningful.
Types of Nominal Interest Rates
Fixed Nominal Rate
The interest rate remains constant throughout the agreed lock-in period.
- • Planning security for the borrower
- • Typical for mortgage financing (5–20 years)
- • Often slightly higher than the variable rate
Variable Nominal Rate
The interest rate is regularly adjusted to a reference rate (e.g., EURIBOR).
- • Initial rate often lower
- • Risk of rising payments
- • Adjustment typically every 3 or 6 months
Nominal Rate vs. Effective Rate (APR)
The key difference: The nominal rate shows only the pure interest rate, while the APR reflects the actual total costs.
| Feature | Nominal Rate | Effective Rate (APR) |
|---|---|---|
| Ancillary Costs | Not included | Included |
| Processing Fees | Not included | Included |
| Repayment Processing | Not considered | Considered |
| Comparability | Limited | Complete |
| Value | Always lower | Always higher |
Tip: Always compare loan offers using the effective interest rate (APR), not the nominal rate. Only then can you see the actual costs.
Calculation Example
How different nominal rates affect an installment loan of €10,000 (48 months):
Example Calculation:
Loan Amount: €10,000
Term: 48 months
Nominal Interest (fixed): 5.50% p.a.
Effective Interest Rate: 5.64% p.a.
Monthly Payment: approx. €232
Total Interest Costs: approx. €1,136
The difference between nominal and effective rate (0.14 percentage points) results from the monthly repayment processing.
Frequently Asked Questions
What is the difference between nominal interest rate and effective interest rate (APR)?
The nominal interest rate is the pure interest rate charged by the bank for lending capital. The effective interest rate (APR) additionally includes all ancillary costs such as processing fees and account management costs. For loan comparison, the APR is more meaningful as it indicates the actual total costs.
What does a fixed nominal interest rate mean?
A fixed nominal interest rate remains constant throughout the agreed interest rate lock-in period. This provides planning security since your monthly payment does not change. For mortgage financing, the lock-in period is typically 5, 10, 15, or 20 years.
When does a variable nominal interest rate change?
A variable nominal interest rate is linked to a reference rate such as EURIBOR and can typically adjust every 3 or 6 months. While there is a risk of rising payments, the initial rate is often lower than a fixed nominal interest rate.
Is the nominal interest rate always lower than the APR?
Yes, the nominal interest rate is always lower than or equal to the APR. The APR includes all additional loan costs beyond the nominal rate. Only when no ancillary costs apply are both values identical – which rarely occurs in practice.
Must the nominal interest rate be stated in the loan agreement?
Yes, according to the German Price Indication Regulation (PAngV), lenders must disclose both the nominal interest rate and the effective interest rate in loan agreements and advertising materials. This serves transparency and consumer protection.
Legal Notice
The disclosure of the nominal interest rate is mandatory in loan agreements and advertising materials according to the German Price Indication Regulation (PAngV). Together with the effective interest rate, it enables consumers to transparently assess loan costs. Status: March 2026.