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: €232.56
Total Interest Costs: approx. €1,163
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?
With monthly instalments the APR is slightly above the nominal rate even without any fees, because interest is compounded twelve times a year. Both figures are identical only if no chargeable costs apply and interest is paid once a year. In practice the nominal rate is therefore almost always the lower figure.
Must the nominal interest rate be stated in the loan agreement?
Yes. Under Section 492 (2) of the German Civil Code (BGB) a consumer loan agreement must contain the information listed in Article 247 Sections 6 to 13 EGBGB, including the borrowing rate and the conditions and period of its application. In advertising that quotes interest rates, Section 17 (2) of the Price Indication Ordinance (PAngV) additionally requires the borrowing rate, the net loan amount and the APR.
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.