Author Topic: How can I calculate the present value or current value of a loan?  (Read 1759 times)

Mandy

• Newbie
• Posts: 1
How can I calculate the present value or current value of a loan?
« on: June 16, 2016, 08:56:06 PM »
I am doing a case study on how to invest on peer to peer lending.
How can I calculate the present value or current value of a loan?
There are some features provided by LC including loan_amnt, funded_amnt, int_rate, installment, total_pymnt, total_pymnt_inv, total_rec_prncp, total_rec_int, total_rec_late_fee and so on.
How can I get the present value of a loan with the data provided?

Thank you for your time.

dompazz

• Full Member
• Posts: 224
Re: How can I calculate the present value or current value of a loan?
« Reply #1 on: June 16, 2016, 09:12:44 PM »
Short answer - that's a loaded question and there is not an easy answer.

Long answer - assuming you understand how to calculate a NPV, plug the remaining cash flows into your NPV calculator, enter a discount rate, and hit enter.  The tricky part is the discount rate.  That's not easily defined and I guarantee if you ask 4 people on this forum, you get at least 6 answers.  You have to start with current loan rates.  Then you adjust for the time remaining on the loan.  Then you need to adjust for the credit quality of borrower, currently.  Choosing those adjustments is the hard part.

If there were more clarity in the secondary market for loans, you could look at recent sales to help estimate the proper discount rate.  Unfortunately, that doesn't exist.  You can get fancy and attempt to back out a fair value and discount rate by looking at loans that are listed, but not sold (giving you an upper and lower bound for value and rate respectively).

(Now is when Anil can jump in and talk about how he does his estimation.)

AnilG

• Hero Member
• Posts: 1109
Re: How can I calculate the present value or current value of a loan?
« Reply #2 on: June 16, 2016, 10:30:58 PM »
Short answer: Present Value of a loan is Outstanding Principal on the loan. You can also add accrued interest if you want to feel better.