Author Topic: How does LendingClub calculate Interest?  (Read 17138 times)

yojoakak

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How does LendingClub calculate Interest?
« on: January 02, 2013, 12:41:16 AM »
I can get close, but I can't get the numbers to add up.

For example, take a random note:

https://www.lendingclub.com/account/loanPerf.action?loan_id=531453&order_id=3333238&note_id=1862355

Issued Date    6/29/10
Loan Fraction    $50
Rate  15.58%

First Payment
Due Date 7/29/10 (30 days from Issue date)
Completion Date 8/4/10 (36 days from Issue date)
Interest (hover your mouse to see more precision) $0.646587383661

$50 * 15.58% * 30 / 360 = $0.649166667 +0.00257928333
$50 * 15.58% * 30 / 365 = $0.640273973 -0.00631341066
$50 * 15.58% * 30 / 365.25 = $0.639835729 -0.00675165466
$50 * 15.58% * 30 / 366 = $0.63852459 -0.00806279366


$50 * 15.58% / x = $0.646587383661
x = 12.0478688525

What does this number mean?


More info on Day Count Conventions. There are many to choose from. Which one(s) does Lending Club use?  http://en.wikipedia.org/wiki/Day_count_convention

brycemason

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Re: How does LendingClub calculate Interest?
« Reply #1 on: January 02, 2013, 10:14:46 AM »
Their interest is probably compounded daily, or maybe even continuously (for which you'd need calculus).

Lloigor

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Re: How does LendingClub calculate Interest?
« Reply #2 on: January 07, 2013, 11:33:38 AM »
And the borrower paid 65 cents of interest in the first payment, where's the problem?  The x you are asking about would be the number of periods that the annual interest is divided into, Not sure why it's a little off 12.

It's not daily or continuously because interest doesn't vary with the month length.  I think they use 30/360, but have no evidence.  I do know that the interest doesn't accrue on the previous balance in the days between due and completion as long as the payment is completed within 15 days.
« Last Edit: January 07, 2013, 11:40:33 AM by Lloigor »

AnilG

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Re: How does LendingClub calculate Interest?
« Reply #3 on: January 07, 2013, 12:26:07 PM »
Use an amortization table. Lending Club amortizes loans similar to mortgages. Below is the amortization table for $50 loan at 15.58% interest for 3 years.


Amortization Table
Payment   Amount   Principal   Interest   Balance
1   $1.75   $1.10   $0.65   $48.90
2   $1.75   $1.11   $0.63   $47.79
3   $1.75   $1.13   $0.62   $46.66
4   $1.75   $1.14   $0.61   $45.52
5   $1.75   $1.16   $0.59   $44.36
6   $1.75   $1.17   $0.58   $43.19
7   $1.75   $1.19   $0.56   $42.01
8   $1.75   $1.20   $0.55   $40.80
9   $1.75   $1.22   $0.53   $39.59
10   $1.75   $1.23   $0.51   $38.35
11   $1.75   $1.25   $0.50   $37.10
12   $1.75   $1.27   $0.48   $35.84
13   $1.75   $1.28   $0.47   $34.55
14   $1.75   $1.30   $0.45   $33.26
15   $1.75   $1.32   $0.43   $31.94
16   $1.75   $1.33   $0.41   $30.61
17   $1.75   $1.35   $0.40   $29.26
18   $1.75   $1.37   $0.38   $27.89
Payment   Amount   Principal   Interest   Balance
19   $1.75   $1.39   $0.36   $26.50
20   $1.75   $1.40   $0.34   $25.10
21   $1.75   $1.42   $0.33   $23.68
22   $1.75   $1.44   $0.31   $22.24
23   $1.75   $1.46   $0.29   $20.78
24   $1.75   $1.48   $0.27   $19.30
25   $1.75   $1.50   $0.25   $17.81
26   $1.75   $1.52   $0.23   $16.29
27   $1.75   $1.54   $0.21   $14.75
28   $1.75   $1.56   $0.19   $13.20
29   $1.75   $1.58   $0.17   $11.62
30   $1.75   $1.60   $0.15   $10.02
31   $1.75   $1.62   $0.13   $8.41
32   $1.75   $1.64   $0.11   $6.77
33   $1.75   $1.66   $0.09   $5.11
34   $1.75   $1.68   $0.07   $3.43
35   $1.75   $1.70   $0.04   $1.73
36   $1.75   $1.73   $0.02   $0.00
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
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yojoakak

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Re: How does LendingClub calculate Interest?
« Reply #4 on: January 07, 2013, 08:18:43 PM »
And the borrower paid 65 cents of interest in the first payment, where's the problem?

It adds up over time. This was just one example.

Look at any loan you've got with more a few payments. Outstanding Principal in the Upcoming Payments box will hardly ever match Principal Balance in the Payment History. Sometimes it will be 10 or 20 cents different. (see below for some examples)


I chose the very first payment so that the Principal at the beginning of the period was a known, exact number. But if the numbers don't even match up for that one...

If LendingClub is going to give us 12 digits of precision, it should at least match something, don't you think?


For example:

Outstanding Principal    $1.15
Principal Balance $1.05
https://www.lendingclub.com/account/loanPerf.action?loan_id=469452&order_id=4814248&note_id=968023

Outstanding Principal    $2.71
Principal Balance $2.60
https://www.lendingclub.com/account/loanPerf.action?loan_id=466459&order_id=1765210&note_id=952532

Outstanding Principal    $6.73
Principal Balance $6.52
https://www.lendingclub.com/account/loanPerf.action?loan_id=503928&order_id=2319416&note_id=1513922
« Last Edit: January 07, 2013, 08:34:51 PM by yojoakak »

yojoakak

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Re: How does LendingClub calculate Interest?
« Reply #5 on: January 07, 2013, 08:21:07 PM »
Use an amortization table. Lending Club amortizes loans similar to mortgages. Below is the amortization table for $50 loan at 15.58% interest for 3 years.

Could you post it again for a 5 year note please?

AnilG

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Re: How does LendingClub calculate Interest?
« Reply #6 on: January 07, 2013, 08:53:01 PM »
You can use MS Excel or online amortization calculators such as amortizationtable.org. Below is the amortization table for 5 years (Loan amount $50, Interest Rate 15.58%, Term 5 years)

Amortization Table
Payment   Amount   Principal   Interest   Balance
1   $1.20   $0.56   $0.65   $49.44
2   $1.20   $0.56   $0.64   $48.88
3   $1.20   $0.57   $0.63   $48.31
4   $1.20   $0.58   $0.63   $47.73
5   $1.20   $0.59   $0.62   $47.15
6   $1.20   $0.59   $0.61   $46.56
7   $1.20   $0.60   $0.60   $45.96
8   $1.20   $0.61   $0.60   $45.35
9   $1.20   $0.62   $0.59   $44.73
10   $1.20   $0.62   $0.58   $44.11
11   $1.20   $0.63   $0.57   $43.48
12   $1.20   $0.64   $0.56   $42.84
13   $1.20   $0.65   $0.56   $42.19
14   $1.20   $0.66   $0.55   $41.53
15   $1.20   $0.67   $0.54   $40.86
16   $1.20   $0.67   $0.53   $40.19
17   $1.20   $0.68   $0.52   $39.51
18   $1.20   $0.69   $0.51   $38.82
19   $1.20   $0.70   $0.50   $38.11
20   $1.20   $0.71   $0.49   $37.40
21   $1.20   $0.72   $0.49   $36.69
22   $1.20   $0.73   $0.48   $35.96
23   $1.20   $0.74   $0.47   $35.22
24   $1.20   $0.75   $0.46   $34.47
25   $1.20   $0.76   $0.45   $33.71
26   $1.20   $0.77   $0.44   $32.95
27   $1.20   $0.78   $0.43   $32.17
28   $1.20   $0.79   $0.42   $31.38
29   $1.20   $0.80   $0.41   $30.59
30   $1.20   $0.81   $0.40   $29.78
Payment   Amount   Principal   Interest   Balance
31   $1.20   $0.82   $0.39   $28.96
32   $1.20   $0.83   $0.38   $28.13
33   $1.20   $0.84   $0.37   $27.29
34   $1.20   $0.85   $0.35   $26.44
35   $1.20   $0.86   $0.34   $25.58
36   $1.20   $0.87   $0.33   $24.71
37   $1.20   $0.88   $0.32   $23.82
38   $1.20   $0.90   $0.31   $22.93
39   $1.20   $0.91   $0.30   $22.02
40   $1.20   $0.92   $0.29   $21.10
41   $1.20   $0.93   $0.27   $20.17
42   $1.20   $0.94   $0.26   $19.23
43   $1.20   $0.96   $0.25   $18.27
44   $1.20   $0.97   $0.24   $17.31
45   $1.20   $0.98   $0.22   $16.32
46   $1.20   $0.99   $0.21   $15.33
47   $1.20   $1.01   $0.20   $14.33
48   $1.20   $1.02   $0.19   $13.31
49   $1.20   $1.03   $0.17   $12.28
50   $1.20   $1.05   $0.16   $11.23
51   $1.20   $1.06   $0.15   $10.17
52   $1.20   $1.07   $0.13   $9.10
53   $1.20   $1.09   $0.12   $8.01
54   $1.20   $1.10   $0.10   $6.91
55   $1.20   $1.12   $0.09   $5.80
56   $1.20   $1.13   $0.08   $4.67
57   $1.20   $1.14   $0.06   $3.52
58   $1.20   $1.16   $0.05   $2.36
59   $1.20   $1.17   $0.03   $1.19
60   $1.20   $1.19   $0.02   $0.00


Use an amortization table. Lending Club amortizes loans similar to mortgages. Below is the amortization table for $50 loan at 15.58% interest for 3 years.

Could you post it again for a 5 year note please?
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

yojoakak

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Re: How does LendingClub calculate Interest?
« Reply #7 on: January 07, 2013, 09:30:39 PM »
Amortization Table
Payment   Amount   Principal   Interest   Balance
1   $1.20   $0.56   $0.65   $49.44
2   $1.20   $0.56   $0.64   $48.88
3   $1.20   $0.57   $0.63   $48.31
4   $1.20   $0.58   $0.63   $47.73
...

And after 4 payments (from the bottom) the interest value no longer matches up. It's just a fraction of a penny, but why shouldn't it be exact?

$0.65
$0.64
$0.63
$0.62
...

Like I said when I asked this question, "I can get close, but I can't get the numbers to add up."
« Last Edit: January 07, 2013, 09:35:05 PM by yojoakak »

Zach

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Re: How does LendingClub calculate Interest?
« Reply #8 on: January 07, 2013, 09:51:12 PM »
Amortization Table
Payment   Amount   Principal   Interest   Balance
1   $1.20   $0.56   $0.65   $49.44
2   $1.20   $0.56   $0.64   $48.88
3   $1.20   $0.57   $0.63   $48.31
4   $1.20   $0.58   $0.63   $47.73
...

And after 4 payments (from the bottom) the interest value no longer matches up. It's just a fraction of a penny, but why shouldn't it be exact?

$0.65
$0.64
$0.63
$0.62
...

Like I said when I asked this question, "I can get close, but I can't get the numbers to add up."

With P2P Lending, payments are (as shown in this example) for such fractional amounts, that due to rounding you'll see small penny discrepancies in amortization or the total payment amounts you'll receive from borrower payments. I guess its just how it works...

See this KB entry by LC for further reference:
http://www.lendingclub.com/kb/index.php?View=entry&EntryID=254

yojoakak

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Re: How does LendingClub calculate Interest?
« Reply #9 on: January 07, 2013, 10:30:24 PM »
With P2P Lending, payments are (as shown in this example) for such fractional amounts, that due to rounding you'll see small penny discrepancies in amortization or the total payment amounts you'll receive from borrower payments. I guess its just how it works...

But again, I can't even get the FIRST payment to match up (let alone once the fractional amounts "have accumulated to a meaningful amount")

$50 * 15.58% * 30 / 360 = $0.649166667
$50 * 15.58% * 30 / 365 = $0.640273973

Lending Club says it should be $0.646587383661
« Last Edit: January 07, 2013, 10:33:12 PM by yojoakak »

Zach

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Re: How does LendingClub calculate Interest?
« Reply #10 on: January 07, 2013, 10:38:45 PM »
With P2P Lending, payments are (as shown in this example) for such fractional amounts, that due to rounding you'll see small penny discrepancies in amortization or the total payment amounts you'll receive from borrower payments. I guess its just how it works...

But again, I can't even get the FIRST payment to match up (let alone once the fractional amounts "have accumulated to a meaningful amount")

$50 * 15.58% * 30 / 360 = $0.649166667
$50 * 15.58% * 30 / 365 = $0.640273973

Lending Club says it should be $0.646587383661

The real solution is to invest larger dollar amounts per note, and you'll see smaller discrepancies. This may not be a good idea as you may risk your diversification. In the grand scheme of things, the rounding can only cause an issue of less than $0.01 per payment, and sometimes the rounding is in your favor.

yojoakak

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Re: How does LendingClub calculate Interest?
« Reply #11 on: January 07, 2013, 10:43:07 PM »
The real solution is to invest larger dollar amounts per note, and you'll see smaller discrepancies. This may not be a good idea as you may risk your diversification. In the grand scheme of things, the rounding can only cause an issue of less than $0.01 per payment, and sometimes the rounding is in your favor.

Thanks but I'm actually trying figure out a IRR/YTM calculation to replace the one that Folfiofn got rid of.

Since I can't get my numbers to match I assume I must be doing something wrong.

Honestly, it doesn't seem like it should be this hard just to figure out how LendingClub calculates 30 days of interest.

(I purposefully picked that note because it's a 30 day month, neither the first nor last day of the period fall on a weekend, and that year was not a leap year. It can't get any simpler than that, can it?)
« Last Edit: January 07, 2013, 10:55:15 PM by yojoakak »

Zach

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Re: How does LendingClub calculate Interest?
« Reply #12 on: January 07, 2013, 10:51:00 PM »
The real solution is to invest larger dollar amounts per note, and you'll see smaller discrepancies. This may not be a good idea as you may risk your diversification. In the grand scheme of things, the rounding can only cause an issue of less than $0.01 per payment, and sometimes the rounding is in your favor.

Thanks but I'm actually trying figure out a IRR/YTM calculation to replace the one that Folfiofn got rid of.


Why not use a 3rd party site such as Interest Radar? It is a very powerful application of your LC data and includes folio data as well.

yojoakak

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Re: How does LendingClub calculate Interest?
« Reply #13 on: January 07, 2013, 11:01:31 PM »
Why not use a 3rd party site such as Interest Radar? It is a very powerful application of your LC data and includes folio data as well.

That's a paid site, isn't it? Anyways I've been working on my own tool:

http://userscripts.org/scripts/show/103295

Randawl

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Re: How does LendingClub calculate Interest?
« Reply #14 on: January 07, 2013, 11:13:11 PM »
Interest Radar is a free site to use.
Thank you for sharing your script with us!  I know it will save me some time.