About net annualized return (NAR)

9 min read
about-blog-post
  • Net Annualized Return (NAR) is a measure of return on investment.

  • NAR includes borrower payments received each month, net of service fees, actual charge offs, and recoveries. 1

  • Adjusted Net Annualized Return (Adjusted NAR) is a measure of return on investment that allows investors to model the impact of potential losses on Notes in their portfolio.

  • Adjusted NAR is similar to Unadjusted NAR but incorporates an estimate of future losses on any loans that are in "past due" status but have not been charged off. 1

  • Both NAR and Adjusted NAR only measure the return on invested cash. Both available cash and cash that is committed to loans that have not yet issued are excluded from the calculation of NAR.

NAR is first calculated when an investor begins to receive borrower payments, usually within 45 days of an investors’ first investment in Notes. Until that time, NAR will display as "New" and no calculation will be available.

What is Net Annualized Return (NAR)?

Net Annualized Return (NAR) is an annualized measure of the rate of return on the principal invested over the life of an investment. NAR is based on actual Borrower payments received each month, net of service fees, actual charge offs, and recoveries. NAR is not a forward looking projection of the performance of any Note and reflects the full principal value of a Note until the corresponding loan is charged off, even if the loan is not current.1

Additionally, as NAR only measures the rate of return on principal invested, it excludes from the calculation both available cash and cash that is committed to loans that are not yet issued.

What impacts NAR?

When you start investing, your NAR will approximate the interest rate of the Notes in which you have invested, less any service fees. As the average age of Notes in your portfolio increases (i.e. 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.1 Please keep in mind that, as you reinvest loan proceeds or make additional Note purchases, such new investments will reduce the average age of the Notes in your portfolio, slowing the decline of your NAR by reducing the impact of maturing Notes. When a loan is charged off, the invested principal is written off and your NAR decreases.

The chart below provides an example of the effect of charge offs on the NAR of a hypothetical portfolio that makes a one-time investment in 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.*

Impact of charge-offs on Net Annualized Return (NAR)

*Chart is shown for illustrative purposes only 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.1

In the hypothetical portfolio illustrated above, after service fees are deducted, the initial NAR is 12.34% (#1). Please note that, due to amortization, the service fee may impact NAR by more or less than 1%.

As loans are charged off, NAR decreases from 12.34% to 9.11% by the 18th month following the date of the investment (#2). During the final 18 months of the term of the loans in the portfolio, additional charge offs reduce NAR from 9.11% down to a final NAR of 8.28% (#3).1 Here’s the basic math as it applies to the hypothetical portfolio represented in the chart on the date falling 36 months after the date of investment:1

What is Adjusted Net Annualized Return (Adjusted NAR)?

Adjusted NAR allows investors to model the impact of potential losses on Notes in their portfolio before the corresponding loan is charged off. Adjusted NAR is similar to Unadjusted NAR but, unlike Unadjusted NAR, it incorporates an estimate of future losses on any loans that are in "past due" status but have not been charged off.1 Investors are able to customize the Adjusted NAR calculation to factor in their own assumptions about the future performance of their loans by logging into their account and clicking the View/Customize Adjustments link on their 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 (you can see historical charge off information at the bottom of this page ).

How do Adjusted NAR and Unadjusted NAR compare?

Like Unadjusted NAR, your Adjusted NAR will initially approximate the interest rate of the Notes in which you have invested, less any service fees. As the average age of Notes in your portfolio increases (i.e. as your existing Notes age and the percentage of your portfolio represented by new Notes decreases), your Adjusted NAR will start to decrease as the loans associated with your Notes enter "grace period" status and further decline (e.g. move from a status of "Late 16-30" to "Late 31-120"). When a loan is charged off, the invested principal is written off and your NAR will further decrease.1

The chart below shows an example of the effect of charge offs and past due loans on Adjusted NAR and Unadjusted NAR for a hypothetical portfolio holding Notes each with a 36 month term.**

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,3 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.1

As you can see, Adjusted NAR and Unadjusted NAR result in the same final net annualized return at the end of the life of the loans in the hypothetical portfolio. Adjusted NAR is designed to accelerate the impact of potential future losses by using the loan status as an indicator of such potential future losses. As a result, Adjusted NAR will always be less than or equal to Unadjusted NAR of any given portfolio.1

Details of the example comparing Adjusted NAR vs. Unadjusted NAR

The chart above assumes a hypothetical portfolio that makes a one-time purchase of Notes each with a 36 month term and 12.80% effective interest rate, 2 holds those Notes through to their maturity, and makes no further investments. After service fees are deducted, the initial Unadjusted NAR is 12.34% and the initial Adjusted NAR, incorporating estimated future losses, is lower at 10.56% (#1). Please note that, due to amortization, the service fee may impact NAR by more or less than 1%.

As loans charge off, the Unadjusted NAR decreases from 12.34% to 9.11% by the 18th month following the date of the investment, while Adjusted NAR decreases even further to 8.78% as the result of its inclusion of estimated future losses (#2). During the final 18 months of the term of the loans in the portfolio, additional charge offs cause the unadjusted and Adjusted NAR to be equal to one another at 8.28%. Adjusted NAR and Unadjusted NAR metrics will always result in the same final net annualized return at the end of the life of the loans in a portfolio.1

Here is the basic math as it applies to the hypothetical portfolio represented in the example above on the date falling 18 months after the date of 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.

What are Traded Note NAR and Adjusted NAR?

Traded Note NAR is a measure of return on Notes bought or sold on the Note Trading Platform.4 It is reported separately from returns for Notes purchased on the LendingClub Platform because traded Notes may be purchased at a price other than par, which may impact investor returns.

To measure the return on a Note that was purchased or sold on the Note Trading Platform, the Unadjusted NAR calculation incorporates any markup or discount (relative to the outstanding principal value of the Note and any accrued interest at the time of purchase) paid for any Note purchased, and the gain or loss on any Note sold on the Note Trading Platform. It also incorporates the impact of the timing of the trade date within the payment cycle for a Note. The resulting "Traded Note NAR" is based on actual Borrower payments received each month, net of service fees, actual charge offs, and recoveries. Because Traded Note NAR incorporates the purchase price paid for a Note and the timing of the purchase date within the payment cycle of the Note, the Traded Note NAR applicable to the Note will approximate the Yield to Maturity of such Note at the time of the purchase. When you first purchase Notes on the Note Trading Platform, your Traded Note NAR will approximate the Yield to Maturity of those Notes. As the average age of Notes purchased on the Note Trading Platform in your portfolio increases (i.e. as your existing Notes age and the percentage of your portfolio represented by newly purchased Notes decreases), Traded Note NAR will start to decrease as the loans associated with the traded Notes become late or are charged off. Please keep in mind that, as you make additional Note purchases on the Note Trading Platform, such new investments will reduce the average age of the Notes in your portfolio, slowing the decline of your Traded Note NAR by reducing the impact of maturing Notes.

If you purchase a Note at par and then sell that Note on the Note Trading Platform at a discount (e.g., at a price lower than the outstanding principal value of the Note and any accrued interest at the time of purchase), your Unadjusted NAR will decrease at the time of sale to account for the loss associated with the discounted sale price. If you sell that Note at a markup (e.g., at a price higher than the outstanding principal value of the Note and any accrued interest at the time of purchase), your Unadjusted NAR will increase at the time of sale to account for the gain associated with the markup.

If you purchase a Note on the Note Trading Platform at a price other than par (e.g., you purchase the Note at a markup or discount) and then sell that Note on the Note Trading Platform, your Unadjusted NAR will increase or decrease to account for the gain or loss relative to what you paid for the Note, less the amortization of the markup or discount of that Note previously factored into your NAR.

If you purchase a Note on the Note Trading Platform, it will be included in your Traded Note NAR. If you purchase a Note at original issuance, it will be included in your primary account NAR. If you sell a Note on the Note Trading Platform that you purchased at original issuance, all returns on that Note will be reassigned from your primary account NAR to your Traded Note NAR at the time of the sale.

LendingClub uses the same general principles to calculate Traded Note Adjusted NAR that we use to calculate regular Adjusted NAR: both incorporate estimated future losses based on loan status.1

What are Combined NAR and Adjusted NAR?

Combined NAR is available for accounts with transactions on both the LendingClub platform and the Note Trading Platform. Combined NAR is an annualized measure of the rate of return on the principal invested over the life of an investment, including money invested via the LendingClub platform and money invested via the Note Trading Platform. Combined NAR is based on actual Borrower payments received each month, net of service fees, actual charge offs, and recoveries. Combined NAR also factors in any discount or markup paid for a Note purchased and any gain or loss on the sale of a Note sold on the Note Trading Platform.

Investors can use Combined Adjusted NAR to model the impact of potential Borrower losses on their portfolio before a loan is actually charged off. If an investor elects for their account returns to be calculated on an adjusted basis, then primary platform returns, traded Note and combined returns will be shown as Adjusted NAR, Traded Note Adjusted NAR and Combined Adjusted NAR, respectively. If an investor instead elects for their account returns to be calculated on an unadjusted basis, then primary platform returns, traded Note and combined returns will be shown as NAR, Traded Note NAR and Combined NAR, respectively. Please keep in mind that all NAR calculations are annualized and may therefore be more reflective of returns in accounts that buy and hold Notes through to their maturity.1

Diversification and other considerations

We believe that broad diversification tends to make any NAR less volatile. Accounts that are concentrated in Notes associated with any single loan or loans or single Borrower or Borrowers may have results that vary significantly from estimated returns. Broadly diversifying investments across hundreds of similarly sized Notes and Borrowers tends to decrease NAR volatility by minimizing the impact of any single charge off.2 Please keep in mind that, as you reinvest loan proceeds or make additional Note purchases, such new investments will reduce the average age of the Notes in your portfolio, slowing the decline of your NAR by reducing the impact of maturing Notes.

Adjusted NAR is just one way to calculate the return on funds you have invested through LendingClub. There are other methods for evaluating the return on fixed-income securities that you could consider.1


NOTE ON SECONDARY MARKET TRANSACTIONS:

LendingClub separately reports annualized investor returns from Notes purchased on the LendingClub platform ("Net Annualized Return" or "NAR") and Notes purchased or sold on the Folio Investing Note Trading Platform4 ("Traded Note Net Annualized Return" or "Traded Note NAR"). Traded Note NAR factors in any discount or markup paid for a Note purchased and any gain or loss on the sale of a Note sold on the Note Trading Platform. Keep in mind that NAR and Traded Note NAR are annualized return measures and may therefore be more reflective of returns in accounts that buy and hold Notes through to their maturity.

You May Also Like

Related Resource Center
Often a measure of last resort, reasons for filing bankruptcy frequently involve overwhelming medical debt, financial strain due to a divorce, or an unaffordable mortgage.
Oct 17, 2023
6 min read
Exasperated looking young woman sitting at desk looking at laptop holding papers in one hand and her head in the other
Soft inquiries won’t impact your credit scores, and hard inquiries can hurt your scores slightly. Here's what you need to know.
Oct 9, 2023
6 min read
woman on mobile phone image
Identifying red flags and knowing how to correct inaccuracies in your credit report can help keep your credit score in good shape. Here's what you need to know.
Oct 2, 2023
9 min read
How to Read Your Credit Report: Red Flags and Errors You Should Dispute
Want to consolidate high-interest debt, renovate your home, or manage an unexpected expense? A personal loan could help.
Sep 25, 2023
7 min read
Top 4 Reasons to Get a Personal Loan
Find out how your savings stack up against other people your age—and what you can do to grow your savings at any stage of life.
Sep 18, 2023
10 min read
Understanding Average American-s Savings by Age
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
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
In some cases, we may need to confirm your employment before your application can be finalized. The fastest way to confirm your employment is to provide your work email address.
Jun 7, 2023
less than a minute read
To process your application, we may need to confirm your income matches what was on your application.
Jun 7, 2023
less than a minute read
The payment transaction type (signature-based or other) is ultimately decided by the merchant and is based on how the transaction is transmitted at the time of processing.
Jun 7, 2023
2 min 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 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
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 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
Change Your Money, Change Your Life
Join our monthly newsletter for tools, tips, and insights to improve your financial health.
  

LendingClub Bank and its affiliates (collectively, "LendingClub") do not offer legal, financial, or other professional advice. The content on this page is for informational or advertising purposes only and is not a substitute for individualized professional advice. LendingClub is not affiliated with or making any representation as to the company(ies), services, and/or products referenced. LendingClub is not responsible for the content of third-party website(s), and links to those sites should not be viewed as an endorsement. By clicking links to third-party website(s), users are leaving LendingClub’s website. LendingClub does not represent any third party, including any website user, who enters into a transaction as a result of visiting a third-party website. Privacy and security policies of third-party websites may differ from those of the LendingClub website.

Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

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. ​Deposit accounts are subject to approval. Only deposit products are FDIC insured.

“LendingClub” and the “LC” symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.