Interim rent was originally conceived to compensate commercial lenders for the time their funds were invested beyond the traditional 30 days for the next first scheduled monthly payment of a lease. This concept is also employed in consumer real estate loans when ‘extra interest’ is charged for the days between an existing loan being paid off and the new loan becoming due. At its core this concept makes sense. Let’s assume a lender funds a loan or a lease on the first of the month and the next payment is scheduled on the 15th of the following month. Most lenders’ original calculations assume that payments will be made every 30 days and in the scenario above the first payment was actually due in 45 days. There are 15 days that the lender does not have the use of their funds and for which time they are not being compensated. So the logical solution is to pay the lender ‘interest’ at the same rate as the loan or lease is structured at for the extra 15 days. Seems fair but that’s not what’s being done by most commercial lenders.
Most commercial lenders will charge a proportional percentage of the full monthly payment (including interest AND principal) that corresponds to the percentage of a month the extra time the funds will remain outstanding. In the example used above the 15 days is one half of a month (30 days) so the lender charges an additional one half payment which not only includes interest but principal as well.
• 36 month loan for $100,000
• At 6% the repayment is $3,042 per month
• 6% interest for 15 days on a $100,000 loan is ¼% or $250.00
• The typical interim rent charged is ½ of a monthly payment or $1,521.00
And that’s an extra $1,271.00 out of your pocket and into the lenders pocket and rather than paying 6% for the extra 15 days you are really paying 36%.
We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.