Every loan is advertised with a rate that looks as small as possible: a 0.5% monthly add-on, a '5.99% flat rate', a promo teaser. The effective annual rate (EAR) — sometimes called the effective interest rate (EIR) — is the opposite. It's the single number that captures what a loan actually costs you per year, so you can compare any two offers fairly.
The EAR folds in three things a headline rate leaves out: how often interest is charged, how your balance changes as you repay, and the fees you pay to get the loan. Technically it's the rate that makes the total of everything you pay equal the amount you actually received — so nothing hides in the fine print.
That's why the EAR is almost always higher than the advertised rate. A monthly add-on charges interest on the full original amount for the whole term, so its EAR is roughly double the headline figure (we break this down in how monthly add-on interest works). And two loans with the same nominal rate can have very different EARs once fees are added: a ₱100,000 loan with a ₱2,000 processing fee costs more in EAR terms than the same loan with no fee, even if the interest rate is identical.
So do banks hide the EAR? Not exactly — they're required to disclose it. The BSP's Truth in Lending Act (RA 3765) obliges lenders to give you the effective interest rate and a full breakdown of finance charges before you sign, and credit-card issuers must show the EIR too. What banks do is lead with the smaller, friendlier number in their marketing and put the effective rate in the disclosure statement — the document you have to ask for and actually read.
How to find it: before you sign anything, ask for the disclosure statement and look for the 'effective interest rate' or 'EIR'. If a salesperson can only quote you a monthly or 'flat' rate and can't tell you the effective rate, treat that as a red flag — and compare the same loan somewhere that shows it.
On Finsyal, every offer lists its EAR right next to the headline rate in the loans table, so you're always comparing the number that matters. Pair that with the loan calculator to see your real monthly payment, and check the total you'll repay — principal plus all interest and fees. Once you shop by EAR, the marketing rate stops fooling you. For a worked example of why '0.5% a month' isn't as cheap as it sounds, see 0.5% monthly add-on vs 12% p.a..