Implicit Interest Rate

What is a Implicit Interest Rate?

An implicit interest rate is an interest rate which is not disclosed in a loan agreement but is implied and can be calculated from the repayment terms of the agreement.

How to Calculate Implicit Interest Rate

Suppose a business has a lease agreement with a lender to borrow £20,000 and has to pay back £22,000 at the end of one year. The interest rate implicit in the lease has not been disclosed in the agreement, but we can calculate the implicit interest rate as being (22,000 – 20,000) / 20,000 = 10%.

While this is a simple example over a one year term, the implicit rate will change depending on whether for example repayments are made monthly or annually, at the start or end of the period, or are regular or irregular. Generally, the implicit interest rate can be shown to be the (IRR) of all the cash flows associated with a loan agreement.

For further information see the Wikipedia definition.

Learn a new bookkeeping term

Random bookkeeping terms for you to discover.

Link to this page

Click in the box and paste this implicit interest rate definition link to your site.

Return to the Dictionary

Implicit Interest Rate March 23rd, 2016Team

You May Also Like

Related pages

income statement unearned revenuejournal entry for impairment lossaccounts payable exam questionsincome statement multiple stepba ii plus growing annuityallocating manufacturing overheadaccounts receivable contra accountaccounts receivable days on hand formulabasic accounting debit creditprofit margin per unit formulafob freight on boardfuture value of annuity in excelinvested capital turnoverloan received journal entryhow do i calculate retained earningsbalance sheet reconciliations exampleswhat does contra asset meanjournal entry accounts receivabledebtors control account examplegoods held on consignment arejournal entries of accounts receivableaccounts receivable turnover rationdeferred tax computation templatechanging from lifo to fifopv annuity factorpetty cash count formgross margin multipliercash count definitionexample of a multi step income statementaccruals and prepayments double entrywhat is dso in accountingbills payable bookbad debt expense entryformula for straight line depreciationperpetuity cash flow formulaassets minus liabilities equals equityformula for quick ratiobookkeeping wagesregister template excelmargin vs markup calculationeffective interest rate calculator excelwhich of the following accounts belong in the general ledgerinventory obsolescence accountingmark up percentagestockholder equity formulabond premium calculatorstock split journal entry examplecogs balance sheetallowance for inventory obsolescencecontra revenue accountstraight line depreciation exampleasset retirement obligation journal entry examplebills payable accounting entriesbalance sheet with accumulated depreciationtrial balance worksheet templatedistinguish between capital receipt and revenue receiptbasic accounting quizcalculating interest expense on a loanfactoring receivables accountingmarketable securities on a balance sheetjournal entry for uncollectible accountswhat is trial balance why is it preparedapr to flat rate convertertypes of accounting errortrade discount in accountingfinance lease accounting example lesseepresent value of bond calculatortransposition error in trial balanceis notes receivable a current assetcalculating effective annual ratecompute total manufacturing costcalculate reducing balance depreciationconsignee consignorproject profitability index calculatorhorizontal balance sheet format in excel