Eastpac Bank charges 18% p.a. compounding daily, on its personal loans. Southpac Bank charges 18.50% p.a. compounded semi-annually. As a potential borrower, which bank do you prefer?

I would prefer Southpac Bank as a potential borrower. Although their annual percentage rate (APR) is slightly higher than Eastpac Bank, their effective annual rate (EAR) is lower. The EAR takes into account the number of times per year the interest is compounded. Eastpac Bank compounds interest daily, while Southpac Bank compounds interest semi-annually. This means that the effective interest rate you pay with Eastpac Bank is higher than the advertised APR.