Actual Rate

Hi ben

Interesting question... There's no way to calculate the real rate accurately as there are a number of significant assumptions - namely that the reinvestment rate remains exactly the same throughout the term, the waiting queue for each reinvested repayment is known in advance, the repayments all occur in line with the credit agreement and at the same date each month, all repayments are made on time or covered by the Shield etc etc.

However, as a rough rule of thumb...

If you invested £10,000 in the 5 year market at an annualised return of 6.1%:

- Nominal (base rate) of the loan is about 5.94%
- Expected interest after a full 12 months would be £610 (before considering any delays in matching reinvested repayments)
- Let's assume all 12 repayments during one 12 month period (of around £193 assuming a 60 month loan) will take two days to re-lend
- The lost interest on each repayment would be around £0.06, or £0.75 over the 12 months (the lost interest would be marginally higher than this in reality due to compounding i.e. the monthly repayments of £193 would increase over the period)
- Your actual interest would therefore be about £609 rather than £610 after 12 months (annualised return of 6.09%)

As you can see, taking a few days for reinvested repayments to match has little impact on your overall return. Matching large new investments quickly is more significant to your overall return. We analysed roughly the impact of this in one of our blog pieces which you may find interesting (and which I've linked below):

www.lendingworks.co.uk/blog-post/why-must-i-wait-my-money-match

Hope this helps.