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A funder quoted a total repayment. How do I turn it into a rate?
Two inputs, one equation, and a warning about the shortcut everyone reaches for first.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
How do I turn a total repayment amount into an interest rate?
You need the cash you actually received and the full payment schedule; the total alone is not enough. Solve for the periodic rate that makes those payments worth the cash today, then multiply by the number of periods in a year. Illustrative only — $40,000 repaid as $52,000 in 12 monthly instalments of $4,333.33 solves to 4.2869% a month, an annualised 51.4%, while the same $52,000 collected weekly annualises to 54.1% because the money comes back faster.
What you need
Two things, and the total is only half of one of them.
- The cash that actually reached your account, after every deduction at funding.
- Every payment: amount, frequency, and how many.
Without the schedule there is no rate, because a rate is a price per unit of time and the schedule is where the time lives.
The method
Solve for the periodic rate that makes the payment stream worth exactly the cash received on day one, then multiply by the number of periods in a year. In a spreadsheet that is the RATE function: periods, payment, present value. The calculators do the same thing.
Illustrative only — $40,000 received, $52,000 to be repaid.
Identical dollars. The rate rises with the frequency of collection, because each payment returns capital to the funder sooner.
The shortcut, and why it is wrong
Dividing the cost by the advance gives $12,000 / $40,000 = 30%, and over twelve months people call that 30% a year.
It is not, and the error is large. You do not have $40,000 for twelve months — by month six you have handed most of it back. Measured against the balance you actually held, the cost is 51.4% annualised, not 30%. The flat figure is a useful check on the dollars and a bad basis for comparison. If you use it, label it.
Two things to fix before you compute
Then write the annualised rate next to the total dollars and keep both. The rate makes structures comparable. The dollars are what you actually pay.
When a fee was deducted at funding
This is the adjustment that moves the answer most, and it is the one most often skipped, because the fee does not appear anywhere in the total repayment figure.
Illustrative only — the same $40,000 approved and $52,000 repayable in twelve monthly payments of $4,333.33, but a $2,000 origination fee is deducted, so $38,000 reaches the account.
Solve against $38,000 rather than $40,000 and the monthly rate is 5.1896%, an annualised 62.3%, or 83.5% effective. Against the full $40,000 it was 51.4%. A fee of five percent of the face amount added nearly eleven percentage points to the annualised cost and changed the total repayment figure not at all.
Always run the calculation against the number that landed in the bank, and check the bank, not the term sheet.
Nominal or effective — say which
Two conventions, two different numbers, and quoting them interchangeably is how comparisons go wrong.
The gap widens as the rate rises, so quoting one product nominally and the other effectively can invert the ranking. Pick one convention, apply it to every offer on the table, and write which one you used next to the number.
When the payments are not all equal
Plenty of schedules are not level. A holiday period at the front, a step-up after three months, a balloon at the end, or a daily schedule that changes when a reconciliation is applied.
The method does not change, only the tool. Lay the actual cash flows out in a spreadsheet — the cash received on day one as a positive, every scheduled payment as a negative on its own date — and use an internal rate of return function that accepts dates. That handles irregular timing and irregular amounts in one step. A level-payment rate function will give you a wrong answer confidently.
When there is no term at all
If the remittance is a percentage of deposits or card settlement, there is no contractual number of payments, so there is no single rate. Anyone who gives you one has silently chosen an assumption.
Choose two assumptions instead and state them. Compute the rate at the funder's estimated speed, and again at a speed roughly a third slower, which is what happens in a soft quarter. Quote the pair. The slower case is what you test affordability against; the faster case is what you test cost against, since the same fixed dollar cost squeezed into fewer weeks is a higher rate.
What to write down
Keep four numbers together on one line for each offer: cash received, total of payments, annualised rate with the convention named, and the term or the assumption behind it. That line is comparable across products. Nothing shorter is.
Then run one check before you sign. Multiply the payment by the number of payments and check it equals the stated total. If it does not, something is missing — a final odd payment, a fee charged per debit, or a schedule that is not what you were told. A schedule that does not add up to its own total is the cheapest error you will ever catch, and it is caught with a calculator in thirty seconds.
Where this applies
Related questions
How do I turn a total repayment amount into an interest rate?
You need the cash you actually received and the full payment schedule; the total alone is not enough. Solve for the periodic rate that makes those payments worth the cash today, then multiply by the number of periods in a year. Illustrative only — $40,000 repaid as $52,000 in 12 monthly instalments of $4,333.33 solves to 4.2869% a month, an annualised 51.4%, while the same $52,000 collected weekly annualises to 54.1% because the money comes back faster.
Which funding products does this apply to?
Merchant Cash Advance, Working Capital, Term Loan, Revenue-Based Financing. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.
Are the figures here quotes?
No. Every worked example is labelled illustrative and exists to show the arithmetic. What a particular lender charges is on that lender's page, where it publishes it at all.
Who writes this?
The Find Me Funders research desk. Some drafting is AI-assisted, and every page that is says so at the top, including whether a person has checked its claims yet.
How do I know a figure here is right?
Where a page carries the green notice, its claims were checked against the sources listed at the end and a reviewer is named. Where it carries the amber one, nobody has verified it yet and you should confirm anything you plan to act on.
Are the examples real deals?
No. Every worked example is labelled illustrative and exists to show the arithmetic. What any particular lender charges is on that lender's page, where it publishes it.
Why do you never say what a typical rate is?
Because we cannot source it. A market average assembled from lenders who do not publish prices is a guess with a decimal point on it. Where a lender publishes a figure, we show that figure and say where it came from.
Is this financial or legal advice?
No. It is general information about how these products work. Outcomes depend on your contract and your state, and a lawyer or accountant licensed where you are is the person to ask about your situation.
Can I reuse this content?
Quote a paragraph with a link back. Do not republish whole articles.