Repayment Cap
A repayment cap on a loan is a limit or restriction placed on the total amount that a borrower has to repay — it’s typically used in variable-rate loans. This cap ensures that even if interest rates rise significantly, the borrower’s repayment amounts won’t exceed a maximum payment ceiling.
A repayment cap provides protection to the borrower from extreme fluctuations in interest rates or changes in market conditions. It can either be a specific percentage or a fixed dollar amount.
There are 3 different types of repayment caps:
Periodic cap: Limits the amount the payment can increase during a single adjustment period (e.g., annually or quarterly).
Lifetime cap: Sets a limit on how much the payment can increase over the entire life of the loan.
Overall repayment cap: Places a restriction on the total amount of money the borrower will have to pay throughout the loan, regardless of interest rate fluctuations.
Revenue-based financing (RBF), for example, features a repayment cap that’s expressed as 1.x, where “x” is the rate that determines the borrowing cost. The repayment cap is only applied to the original amount borrowed, resulting in a flat fee for the loan.
A $50,000 RBF loan with a 1.5 repayment cap, for example, will cost the borrower $25,000 and they’ll repay a total of $75,000 over the loan term.
Lenders may charge slightly higher interest rates or fees on loans with repayment caps, but borrowers get the added benefit of flexibility and a degree of predictability in their repayments.
Financial Glossary
Use Lighter Capital's glossary to understand common terms used in finance and investing, so you can build financial literacy and make informed decisions for your startup.
Repayment Cap
A repayment cap on a loan is a limit or restriction placed on the total amount that a borrower has to repay — it’s typically used in variable-rate loans. This cap ensures that even if interest rates rise significantly, the borrower’s repayment amounts won’t exceed a maximum payment ceiling.
A repayment cap provides protection to the borrower from extreme fluctuations in interest rates or changes in market conditions. It can either be a specific percentage or a fixed dollar amount.
There are 3 different types of repayment caps:
Periodic cap: Limits the amount the payment can increase during a single adjustment period (e.g., annually or quarterly).
Lifetime cap: Sets a limit on how much the payment can increase over the entire life of the loan.
Overall repayment cap: Places a restriction on the total amount of money the borrower will have to pay throughout the loan, regardless of interest rate fluctuations.
Revenue-based financing (RBF), for example, features a repayment cap that’s expressed as 1.x, where “x” is the rate that determines the borrowing cost. The repayment cap is only applied to the original amount borrowed, resulting in a flat fee for the loan.
A $50,000 RBF loan with a 1.5 repayment cap, for example, will cost the borrower $25,000 and they’ll repay a total of $75,000 over the loan term.
Lenders may charge slightly higher interest rates or fees on loans with repayment caps, but borrowers get the added benefit of flexibility and a degree of predictability in their repayments.
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