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How do I work out the rate behind a monthly payment?
Three inputs and one function. The trap is using the loan amount instead of the cash you received.
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 calculate the interest rate from a monthly payment?
Take the cash you actually received, the payment, and the number of payments, then solve for the periodic rate and multiply by the number of periods in a year. Illustrative only — $45,000 received against 24 monthly payments of $2,150 solves to 1.1251% a month, an annualised 13.5%. If $1,350 of fees were deducted so that only $43,650 arrived, the same payments annualise to 16.6%, which is why the cash figure matters more than the loan amount.
The three inputs
That is enough. In a spreadsheet, `=RATE(n, -payment, cash) * 12` gives the annualised figure. The calculators do the same thing without the syntax.
Worked
Illustrative only — $45,000 received, 24 monthly payments of $2,150.
Total repaid is $51,600, so the cost is $6,600. Solving for the monthly rate that makes 24 payments of $2,150 worth $45,000 today gives 1.1251%, and multiplying by twelve gives 13.5%.
The trap: gross versus net
Suppose the note said $45,000 but $1,350 of fees came out of the wire, so $43,650 arrived. The payments are unchanged. Now the monthly rate is 1.3842% and the annualised figure is 16.6%.
Same loan, same payment, 3.1 percentage points of difference, entirely because of which number you started from. Always start from the cash.
The trap: term
A payment that looks affordable can hide a long term.
The same $2,150 a month over 30 payments instead of 24 repays $64,500 on the same $45,000. The monthly rate is exactly 2.5000% and the annualised figure is 30.0%.
Nothing about the payment changed. If a lender responds to "that payment is too high" by extending the term rather than reducing the amount, the rate goes up, not down, and the payment is the only thing that looks better.
Weekly and daily schedules, same method
The arithmetic does not change. Only the number of periods in a year does.
On a daily schedule, multiply the periodic rate by the number of banking days in a year rather than 365. Business debits run Monday to Friday, so 252 is the convention that matches the payment stream. Using 365 on a weekday-only schedule overstates the rate by roughly 45%, and the error appears in both directions in this market.
State your basis whenever you quote a number. "58.9% annualised, weekly periods, simple annualisation" is a figure somebody else can check. "About 59%" is not.
When the term is not fixed
On a product where the remittance flexes with deposits there is no contractual number of payments, so there is no single rate to compute. Bracket it instead.
Take the total repayment, divide by the remittance to get a payment count, and compute the rate at two or three plausible durations — the funder's own estimate, that estimate extended by a quarter, and extended by a half. Quote the range and say which assumption produced each end of it.
The range is the honest answer. A single annualised figure on a flexible-term product is an assumption wearing a decimal point, and the assumption is usually somebody's sales forecast.
Balloons, interest-only periods and step-ups
The level-payment method assumes every payment is identical. Three structures break it.
In all three cases the request is the same: the full amortisation schedule, period by period, with the date and amount of each payment.
Why the total is the better first look
Twenty-four payments of $2,150 is $51,600 against $45,000 received, so the cost is $6,600 — 14.7 cents per dollar of cash. That figure needs no convention, no method note and no assumption about frequency, and it is the one to write down first. The rate is what you compute afterwards, to put this offer beside one with a different shape.
Two checks worth doing
If the payment schedule you were given does not let you do this arithmetic, ask for one that does. A lender who can produce a payment can produce the schedule behind it.
What to do with the number once you have it
The rate is for comparison, not for the decision. It has three uses.
- Ranking offers of different shapes. This is the thing it is genuinely good for, and it only works if both were computed the same way from the same starting figure — the cash, not the face amount.
- Checking a quoted rate. If a term sheet states a rate and your own calculation from the cash received and the payment schedule produces a materially different one, the gap is fees. Ask which fees, and for how much.
- Testing what a proposed change actually does. Before accepting a longer term as a concession, recompute. On a fixed-cost product a longer term does not reduce the dollars at all. On an amortising loan at the same payment it raises the rate, and only the payment looks better.
What the rate cannot tell you is whether the payment fits. That is a separate calculation against your own cash flow, and it is the one that decides whether the facility is survivable.
Where this applies
Related questions
How do I calculate the interest rate from a monthly payment?
Take the cash you actually received, the payment, and the number of payments, then solve for the periodic rate and multiply by the number of periods in a year. Illustrative only — $45,000 received against 24 monthly payments of $2,150 solves to 1.1251% a month, an annualised 13.5%. If $1,350 of fees were deducted so that only $43,650 arrived, the same payments annualise to 16.6%, which is why the cash figure matters more than the loan amount.
Which funding products does this apply to?
Working Capital, Term Loan, SBA Loan, Equipment 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?
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