Product logo

How can we help?

Ask anything. Find answers instantly.

Go & GrowGo & Grow overviewFeaturesAdd moneyGo & Grow payment limits Withdraw moneyFees & taxesRisksMy accountGetting started with BondoraAccount identificationChanging my detailsReferral programSecurityAdd moneyHow do I add money to my Bondora account?Which currencies does Bondora accept?Why is my money reserved on my account? How long does it take for my payment to arrive?I forgot to add my reference numberTransferWise payments are no longer supportedCredit card and Klarna payments are unavailableSecurityWithdrawHow to withdrawWithdrawal informationErrorsMy portfolioWhat is the Secondary Market?Building a portfolioMonitor performancePaying taxesAffiliate partnersHow can I become an affiliate partner?Portfolio ManagerPortfolio Manager overviewPortfolio Manager featuresPortfolio Manager settingsPortfolio ProPortfolio Pro overviewPortfolio Pro criteriaPortfolio Pro featuresAbout BondoraGeneral informationOperational managementCorporate governanceRisk factorsCredit and investment risksOperational risksRegulatory, governance and legal risksRisk management processLoan originationUnderwriting processMarketingCollection & recoveryDebt collection and recovery overviewWrite-off overviewFinancial market overviewWhat’s important to know about the Estonian economy?What’s important to know about the Finnish economy?What’s important to know about the Spanish economy?What is the state of the consumer lending market in Estonia?What is the state of the consumer lending market in Finland?What is the state of the consumer credit market in Spain?How does the consumer lending market in Europe affect Bondora?How can I contact customer support?

Can net returns be positive even if the default rate is above the interest rate?

Net returns on a portfolio can be substantial even if cumulative default rate is equal or even above the nominal interest rate. This is because the performing portfolio continues to generate interest and repayments over the full cycle of the loan not only in a single year.

Over an average 52 month cycle the performing loans and parts of the non-performing loans generate and pay interest for 52 months. Therefore in case one would want to compare this number with the cumulative default rate then the nominal rate should either be cumulated as well or the default rate annualized over the 52 month period. In the calculation model shared above we have built cash flows for an imaginative portfolio with 10% nominal interest rate and a 12% cumulative default rate to illustrate this.

We have seen some investors build analyses where portfolio returns have been calculated as interest rate less cumulative default rate (or cumulative expected loss). Furthermore some of these analysis have been done by calculating tax income on the nominal interest rate although non-performing loans do not pay interest and hence are not taxed. Such models unfortunately are misleading at best due to the reasons explained above.

Please make sure you use the full cash flows when building your own portfolio evaluation models and apply taxation only to actual paid interest not nominal values.


Product logo

* Capital at risk. Investments made with Bondora are not guaranteed, nor is the preservation of value invested guaranteed. Please note that the yield achieved in past periods does not guarantee the rate of return in future periods. The yield of Go & Grow is up to 6.75% p.a. Before deciding to invest, please review our risk statement and consult with a financial advisor if necessary.