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Historical Interest Rate Calculator

Historical sources

Perhaps the most difficult part of the process is to find and extract the necessary data from the historical sources. Only a minority of sources will contain information about all three of the variables (the value of the principal, the value of the interest/total repayment, and the length of the loan) required to calculate an accurate interest rate. This is partly because of the incomplete survival of historical documents, but also a result of the religious disapproval of usury, which led lenders and borrowers to disguise interest payments. In general, there were three main methods of disguising interest used in medieval sources:

1. The most theologically sound method of claiming interest was as compensation for losses incurred by the lender as a result of the loan. In this case, it is possible to see the 'damages' paid by the borrower over and above the principal as effectively equivalent to interest payments. These can then be inserted into the historical interest rate calculator. Of course, in the absence of detailed account books, it can be very difficult to distinguish between genuine damages and disguised interest.
2. The payment of interest could be disguised as gifts, where the borrower would grant a gift of money to the lender, ostensibly as a voluntary expression of gratitude for the lender's support but, in effect, as interest. This functions in a similar way to the payment of damages, in that it comprises an additional payment on top of the principal.
3. Alternatively, the borrower and lender could engage in 'creative accounting'. This was typically done by overstating the amount of the loan received. The borrower, despite having received only 100 marks, would have to seal a document recognising that they owed £100. The difference between the sum actually received and that recognised as being received provided the lender with his interest. In most cases, although we may suspect such practices, they are impossible to prove. However, where full accounts survive, including records of the sums actually received in addition to those stated to have been paid, it is possible to assess the level of interest by comparing the two figures.

In addition, there can be other problems with the historical evidence. A contract might not be exactly dated or the figures might be given in an account covering a period of time. However, it is possible to compensate for any uncertainty about precise dates using sensitivity testing. This works by factoring into the above equation the minimum and maximum possible date ranges for the length of the loan. The historical interest rate calculator thus produces three results: a most likely interest rate, based on the mid-point of any date ranges given, a minimum rate (based on the longest possible length of loan - i.e. taking the earliest limits of any date ranges for the advance of the principal, and the latest limits of any date ranges for repayments) and a maximum rate (assuming the shortest possible loan period). Of course, if the range of possible dates is too wide, then the results produced will be so qualified as to be of little practical value.

For more information about the historical sources, with examples and a detailed case study, see A. R. Bell, C. Brooks and T. K. Moore, ‘Interest in Medieval Accounts: Examples from England, 1272-1340’, History, 94 (2009), 411-33.