If you are thinking about lending in Costa Rica as a way to earn income, one of the first choices is how careful you want to be. Some lenders want the steadiest loans they can find and accept a lower rate for them. Others are comfortable taking on a little more risk for a higher return. Neither choice is wrong. The point is to know what you are choosing.
This guide explains the levers that separate a conservative loan from a higher-return one, using the way our sister company GAP Investments structures its loans.
The rate is the result, not the starting point
GAP Investments publishes lender rates from 9% to 16% a year. It is tempting to look at that range and simply pick the highest number. But the rate reflects the risk in the loan. A higher rate usually means something in the loan needs more careful judgement. The interest rate alone does not make a loan safe, and a lower rate does not automatically make one safe either.
The levers that matter
Loan-to-value
This is the size of the loan compared with the value of the property. It is the single biggest protection a lender has. GAP’s maximum is 50%, and around 30% or less is preferred. The lower the loan-to-value, the bigger the cushion if the property ever has to be sold to repay you. Conservative lenders look for low loan-to-value loans.
The type of property
A finished home in an established area is generally easier to value and to sell than a bare lot. GAP does lend against titled land, but on stricter terms than improved property, usually at a lower loan-to-value. GAP lends only against titled property registered in the National Registry, never against beach concession land.
Location
Property in areas where buyers are active can be easier to value and to sell. A remote property may pay a higher rate because it would be harder to sell.
The term
GAP loans run from six months to three years. A shorter term means your money comes back sooner and there is less time for circumstances to change.
The borrower’s plan to repay
Every loan should have a clear exit: a sale, a refinance or income that will cover repayment. A believable plan to repay is one of the best signs of a sound loan.
What each approach looks like
A conservative approach usually means a low loan-to-value, a finished property in a strong location, a shorter term and a rate toward the lower end, around 9% to 10%. You give up some return in exchange for more cushion.
A higher-return approach might mean a loan-to-value closer to the 50% maximum, land instead of a finished home, a less central location, or a longer term, with a higher rate to match. You earn more, and you accept more that could go wrong.
Some lenders mix the two, keeping most of their money in conservative loans and a smaller part in higher-rate ones. How you divide it is your decision. A financial adviser who knows your situation can help.
What stays the same either way
- You are always in first position on the property.
- The borrower pays you interest monthly, directly.
- You receive the full agreed rate, because the borrower pays the loan fees.
- Nothing is guaranteed: borrowers can pay late or default, and recovery takes time.
Frequently asked questions
Is a 16% loan a bad loan?
Not necessarily. It means the loan carries more risk than a 9% one, so look closely at loan-to-value, property and exit plan before deciding.
Can I choose which loans I fund?
Yes. GAP Investments presents loans, and you decide whether to accept the value used and the terms offered.
Does my residency affect which loans I can fund?
No. Residency is not required to lend through GAP. If you live in Costa Rica, CRIE can check how lending income fits your residency category.
Next steps
To see current lending opportunities, WhatsApp GAP Investments at +506 4001 6413 or visit GAP Investments lending opportunities. For residency help, WhatsApp CRIE at +506 8706 3888 or email info@crie.cr.
This article is for general information only and is not financial, legal or tax advice. We are not licensed financial advisers. Lending involves risk, including loss of principal.