When considering investing in Online Loan Companies, it’s crucial to understand how they measure and report their performance. One key metric is the historical return, which provides insights into the past performance of loans originated through their platforms. This article breaks down what historical return means and how it’s typically calculated by online loan companies, helping you to make informed decisions.
Historical return, in the context of online loan companies, is essentially an annualized estimate of the returns investors have received on loans originated through a specific platform. This calculation takes into account various factors such as interest payments, fees, and losses from loans that have defaulted or been charged off. It’s a backward-looking metric, designed to give potential investors an overview of past loan performance.
The calculation of historical return usually involves several steps. Online loan companies often group loans based on their origination date and risk grade. For each group, they calculate the total interest earned, subtract servicing and collection fees, and factor in losses from bad debts and recoveries from charged-off loans. This net return is then divided by the outstanding principal over time and annualized to arrive at the historical return for that specific loan group. Finally, a weighted average is calculated across all loan groups, often weighted by the principal amount outstanding in each group, to provide an overall weighted average historical return. This weighted average aims to give a more representative figure of the platform’s overall historical performance.
It’s important to note that historical return is not a guarantee of future performance. The actual return on investments in online loan companies can vary significantly. Factors like prepayment rates, loan delinquency, and economic conditions can all influence the eventual returns. Furthermore, the methodology for calculating historical return can differ slightly between different online loan companies, making direct comparisons challenging. Investors should always consider historical return as one piece of information among many and conduct thorough due diligence before investing in online loan platforms. Understanding the nuances of how these figures are calculated is a vital part of assessing the potential risks and rewards associated with online loan companies.
