Realised Annual Return

Realised Annual Return (RAR) is a measure of return on investment that investors have received on the funds invested from loans on the Harmoney Platform. It is calculation of returns received, not a forward forecast of future returns.

Realised Annual Return

Realised Annual Return (RAR) is a measure of the actual rate of return on funds invested on the Harmoney Platform.

What is Realised Annual Return?

Realised Annual Return (RAR) is a measure of the actual rate of return on funds invested on the Harmoney Platform. As RAR is based on historic performance that may not be a good indicator of future returns.

In simple terms, RAR takes the income from lending (interest) and deducts the costs you have incurred (credit losses and fees) to provide the net return. The net return is then annualised and divided by the daily principal outstanding to provide your Realised Annual Return.

You can see your portfolio RAR in your Lender dashboard. It is important to note that RAR is first calculated 90 days after you make your first investment. Until that time no measure of RAR will be available. RAR is a dynamic calculation that will change based on transactions in your portfolio, and be updated once a month (the specific date and time of the latest update can be found on your dashboard), if there were no further transactions the RAR would remain at its current rate.

RAR does not include tax in its calculation as each Lender’s tax situation may be different.

Realised Annual Return (RAR) vs future returns

As RAR is based on historic performance that may not be a good indicator of future returns. Late payments and defaults are likely to have a significant impact on your return going forward. Defaults are included in the RAR calculation when a loan is charged off, which is generally when the loan reaches 120 days in arrears, although this could be less if it has been assessed that there is a very low chance of any further payments being made by the borrower. Note: you will still receive any payments that are received from the borrower after the loan is charged off.

Changes in credit policy and other risks will also impact future returns. The key risks are described in more detail on the Lending Risks page.

What is the Current Portfolio RAR?

How is RAR calculated?

The formula for calculating RAR does look a little complex at first, but when you have all variables it can easily be performed in excel.
  • RAR = Realised Annual Return
  • i = interest amount received
  • d = principal defaulted (written off)
  • f = Service/Lender and note fees
  • t = days principal was invested
  • p = Principal invested
Realised

Example:

Looking at an example, a customer places investment order of $500 on 28-Feb-2015. First payment by the Borrower is made on 3-Apr-2015. Payment is $20.83 which is $9.85 principal payment and $10.98 interest. Service fee is $0.26.

  • i = 10.98
  • d = 0.00
  • s = 0.26
  • t = 34
  • p = 500.00

y = ((i - d - s) x 365/t) / p
y = ((10.98 - 0.00 - 0.26) x 365/34) / 500.00
y = 23.02%

Actual interest rate for the borrower in this case is 29%. The difference is service fee (removing service fee would give an effective yield of 23.57%) and the payment being late.

The formula is then time-weighted to consider the impact of changes in principal as new investments are made. This approach accumulates income received and principal invested on a daily basis: yt1:tn = (∑(it - dt - st) x 365) / ∑pt

The Funds Available and In funding balance in your Lender account is not included in this calculation.  RAR shows returns on money invested, not all funds in your Harmoney account.