The Full Agreed Rate: Why Lenders Pay No Loan Fees

When lenders compare opportunities, one question comes up again and again: is the rate I see the rate I actually earn? With GAP, the lender receives the full agreed rate, because the borrower pays the loan fees. This guide explains how private lender returns work on GAP loans, what the numbers look like in practice, and what can still reduce what you receive.

The full agreed rate, with no GAP fees deducted

Lender rates on standard GAP loans range from 9% to 16% a year, set loan by loan. Whatever rate you agree is the rate the loan pays you: an agreed 12% means 12%, and 16% means 16%. GAP’s loan fees are not taken out of your interest.

That is possible because borrowers pay the loan fees, which are deducted from the loan proceeds at closing. The lender funds the loan; the borrower covers the cost of arranging it.

What that looks like each month

GAP loans have monthly interest-only payments, and borrowers pay lenders directly. As a simple illustration, US$100,000 lent at 12% a year produces US$12,000 of interest a year, or about US$1,000 a month. The principal comes back at maturity, after a term of six months to three years.

That is an illustration of the math, not a promise. Actual income depends on the loan you fund and on the borrower paying as agreed.

Why rates differ between loans

Loans around 9–10% usually come with more conservative collateral and lower leverage. Higher rates tend to reflect something about the loan that calls for more return, such as a higher loan-to-value or a more complex file. The rate alone does not make a loan safe or risky. Private lending rates in Costa Rica explains what sets the number.

What can still reduce your return

• Late or missed payments. Borrowers can pay late or stop paying; see what happens if a borrower stops paying.
• Enforcement costs. If a mortgage has to be enforced, that takes time and legal cost.
• Taxes. The agreed rate is before any taxes that apply to you. Ask your own tax adviser.
• Idle time between loans. Money waiting for the next suitable loan earns nothing from GAP in the meantime.

No return is guaranteed.

Early repayment

Borrowers sometimes repay before maturity. Early repayment has a penalty, and its amount and conditions depend on the lender and are explained during the loan review, so you know in advance how an early payoff is treated.

How to compare private lender returns fairly

When you compare private lender returns with other options, compare like with like: the rate you actually receive, how often it is paid, how long your money is committed, what secures it and what happens if something goes wrong. A 12% loan secured by a first-lien mortgage at 30% loan-to-value is a very different proposition from a higher advertised return with no security behind it. Ask for the loan-to-value, the term, the exit plan and your position on every loan you consider.

Compared with other places to keep money

Private lending is not a savings account: your money is committed for the term, and the security is a property rather than a bank. High-yield savings vs private lending compares the two honestly.

Frequently Asked Questions

Does GAP take a cut of my interest?

No. The lender receives the full agreed rate. Borrowers pay the loan fees, deducted at closing.

How are private lender returns paid?

Borrowers pay interest directly to the lender each month, and the principal is repaid at maturity.

Is the return guaranteed?

No. Borrowers can pay late or default, and enforcement takes time and cost.

What is the minimum to start?

Standard loans start at US$50,000.

This article is general information only and is not investment, legal or tax advice. Figures are illustrations. Private lending carries risk, and no return is guaranteed.

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