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Post by extremis on May 2, 2016 22:03:17 GMT
Mintos reports a 12.59% average net annual return, but how exactly is this calculated? Is it the theoretical average return rate if all loans pay on time and there are no defaults or early repayments?
In the statistics page we see that principal repaid to investors is currently 14168464E, while interest paid is 630027E, that is 4.45%. Even if we subtract the total value of loans sold on SM, 1217788E, from the principal repaid to investors we get an average return rate of 4.86%. That is still way below the advertised average NAR of 12.59%, but also below the lowest interest rate for any single loan currently listed! How is this even possible? I must be missing something here, any ideas?
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JamesFrance
Member of DD Central
Port Grimaud 1974
Posts: 1,317
Likes: 893
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Post by JamesFrance on May 3, 2016 9:17:18 GMT
Most loans are less than a year old so will not have earned a full year of interest yet, also 1 month loans will be repaid with about 1% interest. You could compare the interest you receive each month with the amount invested at the beginning of the month to see that you have at least 1% interest, which would indicate a return of 12% per year.
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Post by extremis on May 3, 2016 17:57:10 GMT
Thanks, JamesFrance. That makes perfect sense now. For example, suppose someone invests 100E on a loan with 12% interest rate (1% per month) and 6 months term. After 6 months, total principal repaid will be 100E and interest paid 6E. If he reinvests the full amount (106E) on a similar loan, after 6 months total principal repaid will be 106E and interest 6.36E. Therefore, after 1 year, total principal repaid will be 206E, while (compound) interest will be 12.36E. Interest to total principal repaid ratio is only 6%, but annual return is 12.36%. The difference would be more striking for even shorter term loans as principal would have to be repaid several times a year, while (compound) interest would remain slightly over 12%.
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