The quote you included above from Roy S is exactly how it works. If you reinvest your payments each month, those payments become principal of new loans. So in your example you actually have $100.83 earning interest for you for the second month, not $97.61. And the next month this will grow again.

With LC you can't reinvest $3.23, but if you have lots of loans and you reinvest each time you have $25 in your account, your overall balance will pretty much behave like a savings account with monthly compounding....but you can't just use your average loan interest rate for the rate as you will have losses from defaults and service charges along the way, so you will need to assume a lower hypothetical interest rate...but the tool you used will be valid with that assumed rate.