Logo

How Do I Track My Overall Rate of Return?

5 min read

A rate of return is a net gain or loss on an investment over a specific time period. It’s expressed as a percentage of the initial cost of the investment. There are several different methods to calculate a rate of return. For Notes investments, LendingClub uses a unique method called Net Annualized Return (NAR).

NAR is an annual rate of return where future cash flows are based on interest and any late fees from monthly borrower payments, minus service charges, charge-offs, and recoveries. You can view your NAR rate on the Account Summary page. NAR rates are updated daily.

Like any rate-of-return calculation, NAR is not a forward-looking projection of future performance. When a NAR rate is calculated, it evaluates the present value of your total Notes investment portfolio compared to your initial Notes investment. You’ll see your NAR rate after you receive your first borrower payment.

What is Net Annualized Return?

Net Annualized Return (NAR) is a measure of the rate of return, calculated annually, on principal invested over the life of a Notes investment. NAR is based on monthly borrower payments, minus service fees, charge-offs, and recoveries.

NAR is not a forward-looking projection of the performance of any Note—it’s based on actual borrower payments as they come in and actual loan charge-offs at the time a loan is charged off. NAR reflects the total principal value of a Note until the corresponding loan is charged off, even if the loan is not current.1

Since NAR measures only the rate of return on principal invested, available cash and cash committed to unissued loans are not part of the NAR calculation.

What impacts NAR?

When you start investing, your NAR approximates the interest rate of the Notes you have invested in, less any service fees. As the average age of Notes in your portfolio increases (in other words, as your existing Notes age and the percentage of your portfolio represented by new Notes decreases), your NAR will start to decrease as the loans associated with your Notes become late. When a loan is charged off, the invested principal is written off and your NAR decreases.

As a simple example, let’s say you make a one-time investment in Notes that all have an effective interest rate of 12.8% and a 36-month term. Once you subtract the 1% service fee, your approximate NAR would be 12.34%. (Note: Because of amortization, the service fee may impact NAR by more or less than 1%.)

In this scenario, you keep all of your Notes until they reach maturity and don’t make any other investments. If every borrower makes on-time payments every month of the 36-month term for their contractual monthly amount—no more, no less—then your NAR would remain at 12.34% for the entire life of the investment.

This, however, is not a realistic scenario. All investments carry risk, and NAR helps you evaluate risk based on your current Notes portfolio performance. Using the same criteria above, let’s consider a more realistic situation where late payments and charge-offs occur throughout the 36-month term.

At any given time, if a borrower doesn’t make their monthly payment, you’ll earn less interest on the principal for the Note associated with that loan, which decreases your NAR. Charge-offs have a more lasting impact and happen for many reasons: a borrower might pay off their loan early, or we may charge off the loan after it has been past due for a long time. As your loan portfolio ages, the likelihood that late payments and charge-offs will occur increases, which lowers your NAR over time.

Impact of charge-offs on Net Annualized Return*

* Chart is shown for illustrative purposes and does not represent the performance of any specific security or portfolio. It is designed to illustrate that NAR is likely to decline over time.

The chart above illustrates how charge-offs could impact your NAR. We start with our initial NAR rate of 12.34% (label #1). As loans are charged off, the NAR rate decreases from 12.34% to 9.11% in the 18 months following the initial investment date (#2). In the final 18 months of the portfolio, additional charge-offs reduce the NAR rate from 9.11% to 8.28% (#3). Here’s a simple calculation showing how service fees and charge-offs affect the final NAR at the end of the 36-month term:

What is Adjusted Net Annualized Return (Adjusted NAR)?

Adjusted NAR is a modified form of NAR that estimates future losses on loans that are in "past due" status but have not been charged off. If you’re familiar with net present value, Adjusted NAR functions in a similar way, but instead of projecting future cash flows, it projects future losses. You can customize the Adjusted NAR calculation to factor in your own assumptions about the future performance of your loans by signing into your Member Center and clicking View > Customize Adjustments on the Account Summary page.

To estimate future losses on loans, we apply a loss-rate estimate to the outstanding principal of loans that are past due but not charged off. The loss-rate estimate is based on the historical charge-off rate by loan status over a nine-month period.

Just like unadjusted NAR, Adjusted NAR initially approximates the interest rate of your Notes, less any service fees. As your existing Notes age, your Adjusted NAR decreases in two ways:

  • As loans associated with your Notes become late and enter a new tranche of days past due (for example, when they move from a status of Late 16-30 to Late 31-120)

  • When loans are charged off.

Adjusted NAR trends downward faster than unadjusted NAR because of the loss-rate estimate: the longer a loan is past due, the more likely it will be charged off.

Let’s look at the same scenario as above, where you make a one-time investment of loans that all have an effective interest rate of 12.8% and a 36-month term. This time, we’ll add Adjusted NAR to the mix.

Comparison of NAR and Adjusted NAR for the same portfolio

† Chart is shown for illustrative purposes only and does not represent the performance of any specific security or portfolio. The chart assumes a hypothetical portfolio that makes a one-time purchase of Notes each with a 36-month term and 12.80% effective interest rate, holds those Notes through to their maturity, and makes no further investments. Please note that, due to amortization, the service fee may impact NAR by more or less than 1%. The chart is designed to illustrate that NAR is likely to decline over time.

In the chart above, the initial unadjusted NAR rate, less service fees, is 12.34%, just as before. The initial Adjusted NAR rate is lower, at 10.56%, because it also incorporates potential future losses (label #1).

As loans charge off, the unadjusted NAR rate decreases from 12.34% to 9.11% in the 18 months following the initial investment date. The Adjusted NAR rate decreases further, to 8.78%, due to projected future losses (#2). In the final 18 months of the portfolio, additional charge-offs cause unadjusted NAR to catch up with Adjusted NAR to meet at a final rate of 8.28% (#3). The two metrics will always result in the same rate at the end of a portfolio’s life because there are no more future losses for Adjusted NAR to project.

Here’s a simple calculation that compares NAR rates—less service fees, charge-offs, and loss estimates—between the two methods at the 18-month mark of the Notes investment:‡

‡ This example is provided for illustrative purposes only and does not represent the performance of any specific security or portfolio. Adjusted NAR and historical performance are not a guarantee of future results. LendingClub Notes are not guaranteed or insured, and investors may lose some or all of the principal invested.

How will my returns change over time?

LendingClub offers an interactive chart that illustrates how an investment is likely to perform over its lifecycle. This chart can help you understand where in the investment lifecycle your portfolio is and how its performance may change over time. Explore the various controls on the chart to visualize how average interest rates, the number of Notes, investment concentration, and other factors can influence the returns of a portfolio over time.

You can find the chart on the Understanding Your Returns page in your Member Center.

LendingClub Resources

Related Articles
Taxes may not be the most exciting thing you'll ever do, but if you have a personal loan, knowing the potential tax implications can help when it comes time to file your return.
Oct 8, 2024
6 min read
Are Personal Loans Tax Deductible?
Chances are, you’re managing money differently today than you were a few years ago. If your shopping, spending, and money management have moved online and onto your phone, you might want to consider whether an online-only bank is a fit for you.
Sep 30, 2024
7 min read
Guide to Banking Online
If you’re in the market for a new car, you might be wondering if your current credit score will help you get a good deal or hold you back. Your credit score is an important part of the process, but it’s not the only factor. Though good and excellent credit scores help when taking out any line of credit, it is possible to buy a car with a less-than-ideal score.
Sep 30, 2024
6 min read
good credit score for a car
Pride of homeownership also means managing (and paying for) what can often feel like an insurmountable list of repairs and improvements. Sometimes it's difficult to know when to DIY a home repair project or find a handyman or other professional better equipped to handle it for you. Learn which common home improvement projects are simple enough to tackle on your own, and when to call in the experts.
Sep 28, 2024
8 min read
DIY home repair
Opening a bank account online is a convenient way to manage your money without setting foot in a local branch. Today, many online-only banks, traditional banks, and credit unions have easy online applications, so you can shop around and open an account from the comfort of your home.
Sep 25, 2024
6 min read
How to Open a Bank Account Online
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
Blog-post
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
You can withdraw available cash from taxable investment accounts at any time.
Jun 7, 2023
less than a minute read
Find your account number in seconds simply by
Jun 7, 2023
less than a minute read
You’re due a cash payment to your account, but the service fee is still processing.
Jun 7, 2023
less than a minute read
We offer several ways for you to make your monthly auto loan payment, so you can choose the method that works best for you. A statement will be mailed to you every month that shows the payment amount and due date.
Nov 29, 2023
less than a minute read
LendingClub provides a year-end statement that summarizes your account activity, including how much interest you’ve earned and information regarding Notes tied to loans that have been charged off.
Jun 7, 2023
less than a minute read
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
Sep 6, 2023
4 min read
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. Credit union membership may be required. Deposit accounts are subject to approval. Deposit products are FDIC-insured up to $250,000 per depositor, per ownership category.

"LendingClub" and the "LC" symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.