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

what is roce in accountinghow to do adjusting journal entriesshipment fobbasic accounting knowledge testlabour variance formulagross fixed assets formulanpv formula exceldifference between single entry and double entry bookkeepingbookkeeping voucheramortisation of bondsinternal controls accounts receivablesample trial balance worksheetsample cash vouchertreasury stock balance sheet exampleending inventory equationjournal entries for tdscosts of goods sold equationmanufacturing overhead calculationwhat is the annual dividend on the preferred stockdefine capital injectioncash conversion cycle equationwhat is the formula for contribution margindebt equity ratio calculation from balance sheetperiodic and perpetual inventory systemsgrowing annuity calculatorcreditors control account formataccelerated depreciation calculationproduction overhead formulaformula for accounts receivable daysdefine consigned goodshow to record collection of accounts receivablecoupon bond price formuladupont analysis spreadsheetamortisation of intangibleshow to calculate income tax payable on balance sheetannual leave accrual accountingfactoring of trade receivablesimprove asset turnoverhow to calculate days receivablefull accounting equationgrowing annuity formulapetty cash reconciliation templatedouble declining balance depreciation tablehow to keep a ledger bookdeferred revenue expenditure written offweighted average method of inventory valuationwhat is folio in accountingprepaid insurance accounting entryppv varianceannuity table future valuehow to calculate labor rate variancesalvage value depreciation calculationformat of asset registerbills receivable and bills payablecomparative common size income statementleverage ratio formula for banksaccrued interest journal entryaccounting entry for prepaid insurancegaap insurance proceedsaccounts receivable basicsbeginners bookkeepingbanking trivia questionsaccrual of interest expensehow to calculate fixed cost per unithow to find direct labor cost in accountingdepreciation and amortization formulahow to calculate weighted average contribution marginwhat does gaap stand forformula for annuity duethe double entry accounting system records each transaction twice