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How Investmint calculates interest rates

June 07 2019

How Investmint calculates interest rates

If you're a small or medium business owner and need a loan, you might find it difficult to find the right finance fit for your business or to understand the actual cost of each type of loan. 

You've heard the old saying "you have to spend money to make money"; well it's true. If you're confident about your business’s success and want to grow, then you need to invest in the expense of growth. While there's no denying that taking on debt can seem scary, and for most business owners, plan B, a loan can help you finance changes in your business that can result in a high return on your investment. 

Before taking on a loan, it’s important to understand how loan repayments work and what the actual cost of those repayments are. In most cases, the interest rate is the deciding factor when going ahead with a loan, because the lower your interest rates, the lower your loan repayments. However, many financial institutions are not fully transparent about their fees, and a lot of the time, the borrower ends up paying a higher percentage than what they thought. 

We work differently

We are transparent about our interest rates and the process involved in applying and obtaining funding. You’ll always know the exact cost and only pay what was agreed. There are no surprises, except that when you make repayments on time—expect to be rewarded with a lower interest rate. 

We’ll never use the word from when referring to interest rates because that implies a best-case scenario. As soon as you hear the word “from”, a person immediately wants to know the “to” as well. 

Instead of using sales phrases like from and to we give you the best-case and worst-case scenario, so you can take that information and make an informed decision whether you can afford the repayments or not. 

Another word we don’t use is algorithm. Traditional financing institutions often refer to algorithms when asked how they calculate interest, but the truth is, most people have no idea how an algorithm determines their interest rates, and therefore cannot judge where on the interest rate scale they fall.

We don’t hide behind the word algorithm. We make it very clear how we calculate your interest rate. We look at what is most important to our investors, and that’s having their repayments paid on time. 

There are 2 things we look at when calculating your interest rate: 

  1. The number of repayments made on time
  2. Your repayment percentage

The process of how we calculate your interest rate is simple; we calculate the number of repayments made on time and based on your repayment percentage; we assign an interest rate to you. 

You are in full control of your repayment percentage; the more payments you make on time, the lower your interest rate will be. 

How completed projects affect your interest rate

If you are new to the Investmint community and have not yet traded with us, you’ll need to build a repayment history so that we can calculate your interest rate based on your on-time repayments. 

For your first 5 trades you are assigned to what we call level 4. You'll start with an interest rate of 4.7% (4.7% is the starting rate for invoice factoring, 5% is the starting rate for project financing), and after your 5th completed trade or project, your repayment rating takes effect.   

An example of this could be:

You’ve done 6 trades and made 5 out of 6 repayments on time; your score will be 83%. If after 10 trades, you have made 9 repayments on time, your rating will shoot up to 90% and you qualify for a lower interest rate. Again, you control whether you make your payments on time or not.

See how the on-time repayment rates correspond with borrower’s interest rates, for invoice factoring and project financing here.

How the other guys calculate interest rate

Interest rates are often difficult to understand, calculate and compare because of all the variables involved and all the different methods of calculating interest.

That’s why transparency is at the core of Investmint’s client protection principles. 

The lack of transparency of interest rates is related to the amount the interest is calculated on, which is either the advanced amount or the capital amount outstanding. 

If the interest rate is based on the advanced amount, then the amount of interest you’re paying does not decrease as you repay the loan, resulting in the interest effectively increasing over the term of the loan to a rate that is much higher than the quoted rate at the start of the loan. 

With Investmint, early repayments decrease interest amount

In keeping with Investmint’s goal of ensuring that interest rates and other terms and conditions of financing are transparent and adequately disclosed in a way that is understandable to clients, we make it clear that we calculate interest on the capital amount outstanding only. What this means is that our quoted interest rate is exactly what it appears to be. 

Our commitment to transparency means we will always provide you with as much information as possible throughout the entire borrowing and funding process, ensuring that your decisions are informed and flexible to fit your needs.