What Is IRR
IRR (internal rate of return) is the discount rate that makes the net present value of a series of cash flows equal zero.
For consumers: plug in your monthly payments as cash flows and solve — the resulting rate is the true annualized rate.
How "6% Advertised" Becomes 12% Actual
The classic installment playbook:
- Borrow CNY 100K, repay CNY 8,800 monthly over 12 installments
- Advertised annualized: 6%
- But you're repaying principal every month — the balance you actually use keeps shrinking
- Under IRR: ≈11.8% actual annualized
The gap comes from the amortization structure plus upfront fees.
5 Real Scenarios, Decoded with IRR
1. Credit card, 12 installments. Advertised "0.6% monthly fee" → IRR ≈ 13%
2. Dealership "0%" auto loan. Add CNY 8,000 in service fees → IRR ≈ 6%
3. Renovation loan, 36 months. Contract says 4.5%, but 3% fees are charged upfront → IRR ≈ 8.5%
4. Online loan with upfront deduction. Borrow 100K, receive 80K, repay 9,000 × 12 → IRR ≈ 50%+ (likely unlawful)
5. 30-year mortgage. Advertised 3.50%, standard EMI → IRR nearly equals the headline rate (the most transparent)
IRR vs APR vs Daily Rates
- APR (nominal): daily rate × 365, ignoring compounding
- IRR (actual): accounts for how long you hold the money — the international comparison standard
- Daily rates: favored by shady lenders ("0.05% per day" ≈ 18% annualized)
To compare true loan costs, use IRR only.