Private Lending Rates in Costa Rica: What Actually Sets the Number

The range is 9% to 16% annually, and the first thing worth saying is that the number is not a price list. It is an output. Two loans of the same size on two properties a kilometre apart can sit at opposite ends of that range, and the reason is always visible in the file.

What pushes a rate down

A large cushion. The further the loan sits below what the property is worth, the less has to go right for the lender to be repaid. This is the single biggest factor, and nothing else comes close.

A property that sells. A finished home in an established area with comparable sales nearby is easier to value and easier to move than raw land an hour off the highway. Marketability is priced.

A clean, named exit. A signed sale agreement, a refinance already in motion, or a business with cash flow that covers the payment. An exit described as “we will figure it out” is not an exit.

An orderly owner. Municipal taxes current, company books in order, documents ready. It sounds minor and it is not — the small obligations tell you how the large ones are handled.

What pushes it up

The mirror image. A tighter cushion. A property that is harder to value or slower to sell — land without services, something part-built, an unusual asset with few comparables. A shorter term, where the lender is compensated for redeploying capital sooner. A vaguer exit. Or paperwork that needs untangling before anything can be registered.

Rate is not a verdict on the borrower’s character. It is the price of the specific combination of cushion, marketability and timing that the file presents.

The part that surprises new lenders

Someone arriving with capital naturally looks at the top of the range and asks how to get 16%. It is the wrong first question, and the reason is practical rather than moral.

Files at the low end are plentiful; files at the high end are scarce and scarce for a reason. A lender who insists on 16% spends real stretches of the year with money sitting idle, waiting for a file to appear. Idle capital earns nothing, and a year at 9% fully deployed beats a year at 16% deployed half the time — before you even reach the question of which of those files was more likely to go sideways.

This is why the most active lenders here work in the lower part of the range. The upper end exists and is legitimate; it simply asks for patience and a stronger stomach.

How the rate compares

Against a savings account it is not a close contest. Against equity markets it is not the same kind of comparison at all: shares may return more in a good year and nothing in a bad one, while a loan pays a known figure on a known date. And against bank lending, the honest point is that rates offered to foreign applicants at banks here are closer to private rates than most people assume — the gap is smaller than the conversation suggests.

What the rate does not include

Two things sit outside it. Closing costs of roughly 8% of the loan, covering legal work and GAP’s fee, agreed before signing. And late-payment interest, a separate figure that applies only to instalments that arrive late; it exists to discourage delay, not to earn anything.

Setting your own number

How the rate is quoted and paid

Rates here are quoted annually and paid monthly, on interest-only terms in most cases, with the principal returned in full at maturity. A loan of $150,000 at 11% pays roughly $1,375 a month, and $150,000 comes back at the end.

That structure is why the monthly figure is so predictable: it does not amortise, so it does not drift. It also means the principal repayment is a single event that depends entirely on the exit, which is why the exit deserves more attention than the rate.

When a rate looks too good

A high rate on a file that otherwise appears clean is worth pausing over, because in a market this small an unusually generous number usually means something has been left out of the summary.

The usual candidates: the value used in the ratio is the owner’s figure rather than an appraisal; there is an existing lien ahead of yours; the property is harder to sell than the description suggests; or the term is short because the borrower needs it short, not because you were offered a premium. Every one of those is visible in the file if the file is read. The rate is a summary of the risk, and a summary is never the place to stop.

The workable approach is to decide what cushion, property type and exit you are comfortable with, then accept whatever rate that combination pays. Lenders who do it the other way round — fixing the rate first and adjusting their standards until a file clears it — end up owning the weakest loan in their portfolio at the highest yield. It is the most common mistake a new lender makes here.

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)