What is the term used for an interest rate that reflects actual paid interest after compounding?

The term that describes an interest rate which reflects the actual paid interest after accounting for compounding is known as the effective interest rate. This rate provides a more accurate representation of the true cost of borrowing or the true yield on an investment because it takes into consideration how often interest is compounded over the period.

In contrast, the nominal interest rate does not involve compounding effects; it simply indicates the stated rate without adjusting for how interest may accrue. The annual percentage rate (APR) similarly represents the nominal rate but may include certain fees and costs. The discount rate is often used in present value calculations rather than to measure effective interest in the context of loans or savings.

By focusing on how compounding affects the interest paid or earned, the effective interest rate provides a comprehensive understanding, essential for both consumers and professionals in the field of finance.