Definition (1):
The contractual interest rate often referred to as the stated rate, is the rate used to determine the amount of cash interest the borrower pays and the investor receives. It is the rate applied to the face (par) value to arrive at the interest paid in a year. Usually, the contractual rate is stated as an annual rate. Interest is generally paid semiannually.
Definition (2):
This rate of interest is a certain rate stated in the terms of a bond payable or note payable. It is multiplied by the bond’s or note’s face amount for deriving the interest’s amount to be paid to the bond or note holder. This interest rate can differ significantly from the market interest rate.
Definition (3):
“Contractual Interest Rate means the interest rate which is stipulated in the credit agreement for consumers and constitutes the basis for the preparation of a payment schedule and is calculated by considering the advance interest rate if any, paid by the consumer,”
Use of the Term in Sentence:
- Sometimes, the contractual interest rate is fixed and does not change throughout the life of the bond or note.