When a loan is quoted as a total repayment instead of a rate, here is how to work out what it costs

"You get $50,000, you pay back $61,500." That sentence contains no rate, no term and no schedule, and it is deliberately comparable to nothing. Two steps turn it into a number you can set beside a bank quote.

Step one: the cost as a share of what you received

Take the total repayment, subtract what actually landed in your account, and divide by what landed.

Illustrative only — $50,000 funded, $61,500 total repayment. The cost is $11,500, which is 23.0% of the amount funded. If a fee was deducted at funding, subtract it from the amount you received before dividing, because interest and cost are calculated on the face amount but you only got the net.

This number is honest as far as it goes, and it is not a rate. It has no time dimension. It is the same 23.0% whether you repay over four months or four years, which is precisely why it gets quoted.

Step two: attach the time

The cost of money depends on how long you hold it. On a repayment schedule you never hold the full $50,000 for the full period — you start giving it back immediately, so your average outstanding balance is roughly half the face amount. That is the arithmetic that turns 23% into something much larger when annualised.

Illustrative only — the same $50,000 funded and $61,500 total repayment, under three different schedules:

• 12 equal monthly payments of $5,125. The internal rate of return is about 3.338% per month, which is roughly 40.1% on a nominal annual basis and about 48.3% compounded.
• 52 equal weekly payments of $1,182.69. Faster principal recovery, so a higher annualised cost: roughly 42.2% nominal annual.
• 252 business-day payments of $244.05. Roughly 42.8% nominal annual.

Same money in, same money out, three answers. The schedule is not a payment convenience. It is a price term.

Note what happened between step one and step two: 23.0% became roughly 40%. That is not a markup anyone added. It is what happens when a headline cost is divided by the full amount but you only have the use of about half of it on average.

Doing the calculation yourself

You do not need to build the model by hand. Any spreadsheet has a rate function: give it the number of payments, the payment amount as a negative, and the amount funded as a positive, and it returns the periodic rate. Multiply by the number of periods per year for a nominal annual figure, or compound it for an effective one. Say which of the two you are quoting when you compare offers, because they are different numbers and the gap widens as the rate rises.

Two things to get right. Use the amount that reached your bank account, not the face amount, if fees were netted out. And use the real payment count and frequency, including any holdback or reconciliation mechanism that changes the amount debited.

Where this gets genuinely difficult

If repayment is a percentage of daily card or bank receipts rather than a fixed amount, the term is not known in advance. That is the defining feature of a merchant cash advance and of some revenue-based products, and it means there is no single correct annualised figure — only an estimate based on an assumed repayment speed. If sales run faster than assumed, the effective cost rises, because the same fixed dollar cost gets compressed into fewer days.

A factor rate has the same problem in a different wrapper. A 1.23 factor on $50,000 is $11,500 of cost, exactly the figure above. It becomes a very different product at four months than at eighteen, and multiplying a factor rate by anything to "get an APR" without stating the term is not a conversion, it is a guess.

What you are entitled to ask for

Ask for four things in writing, and treat reluctance on any of them as information:

1. The exact amount that will be deposited, after all fees.
2. The exact total of all payments.
3. The number of payments, the amount of each, and the frequency.
4. Whether any part of the cost is rebated if you repay early, and how that rebate is calculated.

With those four you can compute the cost yourself and stop relying on anyone's characterisation of it.

Put the deducted fee into the same calculation

The three schedules above assume the full $50,000 reached your account. Often it does not, and the fee appears nowhere in the total repayment figure, so it appears nowhere in the cost unless you put it there.

Illustrative only — the same $50,000 funded and $61,500 repayable, but a $2,000 origination fee is netted out at closing, so $48,000 arrives.

• 12 monthly payments of $5,125. Against $48,000 rather than $50,000, the nominal annual rate rises from 40.1% to 48.4%.
• 52 weekly payments of $1,182.69. From 42.2% to 51.0%.
• 252 business-day payments of $244.05. From 42.8% to 51.6%.

A fee of four percent of the face amount added roughly eight percentage points in each case, and changed the headline "you pay back $61,500" not at all.

What an early payoff quote is worth

Ask for the payoff figure at a specific future date before you sign, and ask for it in dollars.

On amortising debt it is the remaining principal plus accrued interest, possibly plus a prepayment charge, and repaying early genuinely reduces the cost. On a fixed-total obligation it is frequently the entire remaining balance with no reduction at all — in which case early repayment raises your annualised cost rather than lowering it, because the same dollars are delivered over fewer days.

Where a discount does exist, read the formula. One expressed against the remaining balance is worth far more than one expressed against the unearned portion of the cost, and one available only in the first thirty days is worth close to nothing.

Where reconciliation changes the arithmetic

If the agreement contains a reconciliation or true-up mechanism, the payment count is not fixed, which means the rate is not fixed either.

Find out whether it is a right you can invoke or a discretion the funder may exercise, what evidence you have to supply, how long it takes, and whether using it carries a fee. A facility with a genuine, usable reconciliation right is a different instrument from one with the same headline numbers and a discretionary clause.

Disclosure law is moving, unevenly

Several states have enacted commercial financing disclosure laws that require providers to state financing cost in a standardised way for covered transactions, including an annualised rate for some product types. New York's Commercial Finance Disclosure Law sits in NY Financial Services Law article 8, and California's regime came out of SB 1235 with rules administered by the DFPI. Coverage, thresholds and exemptions differ by state and have been amended since enactment, so check the current text for the state where the transaction is booked rather than assuming a disclosure is required.

Where no disclosure obligation applies, the arithmetic above is the disclosure. It takes about two minutes and it is the difference between comparing offers and comparing sales pitches.