A vendor offers you an early payment discount. You will get a 2% discount if you pay the balance within 10 days.
Otherwise, the full balance is due in 30 days. What is the effective interest rate earned on this discount?

A vendor offers you an early payment discount. You will get a 2% discount if you pay the balance within 10 days. Otherwise, the full balance is due in 30 days. What is the effective interest rate earned on this discount?

This is stated as 2/10 net 30

Effective Interest Rate on the Discount Formula is below:

Discount %

100 - Discount %

x

360

Balance Due Days - Discount Period Days

2%

100 - 2%

x

360

30 - 10

2%

98%

x

360

20%

Effective rate of interest = 0.020408163265306 x 18 Effective rate of interest = 0.36734693877551 or 36.73%