The concept of real interest rate is useful to account for the impact of inflation.
In the case of a loan, it is this real interest that the lender effectively receives.
For example, if the lender is receiving 8 percent from a loan and the inflation rate is also 8 percent, then the (effective) real rate of interest is zero: despite the increased nominal amount of currency received, the lender would have no monetary value benefit from such a loan because each unit of currency would be devalued due to inflation by the same factor as the nominal amount gets increased.
Since the future inflation rate can only be estimated, the ex ante and ex post (before and after the fact) real interest rates may be different; the premium paid to actual inflation (higher or lower).
Although some conventions are used where the compounding frequency is understood, consumers in particular may fail to understand the importance of knowing the effective rate.
A loan with daily compounding has a substantially higher rate in effective annual terms.
For a loan of $10,000 (paid at the end of the year in a single lump sum), the borrower would pay $51.56 more than one who was charged 10% interest, compounded annually.