What does paying points on a money borrowed money means

[Hilary Nwakor]

What does paying points on a money borrowed from hard money lender means? 

For example, if you borrow $100,000 from a hard money lender at 16% and it takes you 6 months from start to finish to pay it back, your interest charges would be $8,000. And if you had to pay points at say 4 points, that’s a further $4,000, adding up to grand total in $12,000 in interest charges! I'm a little bit confused on the 4 points and don't know what it means.

[David Dachtera]

@Hilary Nwakor,

You got it right - a "point" is one percent of the amount of the loan. You either pay it up-front in cash or it might be added onto the "end" of the loan.

It's just a way for lenders to increase their ROI.

I have one colleague with a private lender who charges him 0% for the first 6 months, then 18% (good incentive to keep a project on schedule!) and 10 points. Even if the payback comes within the 6 months (0% interest), the lender still makes 20% annualized return.