When we think about both investing our savings and requesting a loan, one of the most influential factors in deciding which operation best suits our preferences is the profitability or the interest rate of the operation.
One of the most recurrent issues in crowdlending is how to calculate the profitability or type of loans https://bridgepayday.com/ or investments of this type.
In addition to explaining how to calculate the interest rate of the loans for crowdlending for companies, on what depends on one type of interest or another and what types of interest you can get through this method.
Therefore in this article, we will talk about:
- What are crowdlending loans?
- Interest rates on crowdlending loans for business requesting financing
- Interest rates on loans by crowdlending for investors.
Let’s start at the beginning…
What are crowdlending loans?
Mainly, crowdlending is a direct line of connection between investors and companies that need financing. Therefore, it is a model where anyone can obtain an attractive return for their money by lending directly to companies and, therefore, contributing to the real economy, allocating their capital to the companies that make up the national productive fabric.
Interest rates on crowdlending loans for businesses that request financing
Companies that request financing through crowdlending will get a loan within a set period of time, without additional products, without hidden commissions, without small print and generally more agile and faster than bank financing.
Calculation of the interest rate of the loans by crowdlending: The risk-return relation
To understand the reason for an interest rate in a loan for crowdlending and not another, we must take into account the following relationship:
At lower risk, lower interest rate
Crowdlending platforms, in order to offer an interest rate, take into account the risk-return ratio, that is, at higher risk, it will be necessary to offer greater profitability for the investor and therefore a higher interest rate for the company.
To calculate it, the platforms request documents from the companies to be able to evaluate their evolution, current events, forecasts … and based on the analysis of said information, an interest rate or another is established.
Interest rates on crowdlending loans in Spain
The interest rates of loans of this type in Spain are from 2% per year + Euribor. This interest rate of 2% + Euribor in loans for crowdlending is only offered by MytripleA thanks to the endorsement of a Reciprocal Guarantee Company.
In loans for crowdlending without the endorsement of a Reciprocal Guarantee Society, the average interest rate is between 6-8% per annum on average.
Interest rates on loans by crowdlending when investing
Now we put ourselves on the other side. The investor has the freedom to decide in which companies he wants to invest his savings based on his preferences and information that he has about the company and his request. This information will be found in the marketplace or market of the platform where the different approved loans of the applicant companies will be published. This way, the investor will obtain an attractive return for his money and, in addition, in the case of the guaranteed investments offered by MytripleA, without having to renounce security.
It is important to know all the aspects related to investment through crowdlending platforms. We break down the most important aspects.
Calculation of interest on the loan to be received
The way to calculate the profitability of investments is one of the most recurrent doubts among investors in crowdlending. We explain how it is calculated.
Generally in the investments by crowdlending the form of amortization, and therefore, how the investors will recover their money, is through monthly installments. These are composed of capital and interest. Your calculation will be through a French depreciation system but, what is this?
The French amortization system as the key to understanding the interest rate of loans by crowdlending
The French depreciation system is the method that is generally used for the calculation of loans. Now it is also used to calculate the amortization of loans and investments through crowdlending.
Its main characteristic is the amortization of the capital invested in constant installments. One of the characteristics of this system is that at the beginning more interest is paid than at the end since it is calculated on the outstanding capital pending amortization.
Let’s give an example to understand it more easily.
- An investment (or a loan) of € 6,000.
- A constant fee of € 527.50 (The total interest paid on the loan in each installment is calculated, added to the capital and divided by the number of installments).
- 1-year term with monthly amortizations (12 months, 12 installments)
- Profitability of 10% per year (to make the calculation easier)
The ratio between interest and capital could be represented in a simple way like this:
But it must be taken into account, that being a French depreciation system, once a fee is charged (or paid), the capital pending amortization is reduced, and therefore the interest rate (%) will be applied on that new capital pending amortization.
The French amortization system calculates amortized capital and interest on living capital which means that, as the month’s pass, the remaining living capital is lower, so that the interest rate will be applied on that remaining amount.
- Fee 1 composed of € 50 of interest and € 477.50 of capital. Formula: 10% / 12 months * € 6,000 = € 49.99 , rounding, € 50
- Capital pending amortization: € 6,000 – € 477.50 = € 5,522.50 pending amortization.
The profitability to obtain this time is calculated on those € 5,522.50, that is, 10% / 12 months * € 5,522.50.
- Fee 2 composed of € 46.02 of interest and € 481.47 of capital. Formula: 10% / 12 months * € 5,522.50 = € 46.02
- Capital pending amortization: € 5,522.50 (new outstanding capital) – € 481.47 = € 5,041.03 pending amortization.
The return to be obtained this time is calculated on those € 5,041.03, that is, 10% / 12 months * € 5,041.03
And so on until the end of the investment or loan.
Therefore, it would be a mistake to calculate the profitability of your investment in crowdlending by making 10% * € 6,000, given that capital and interests are being recovered monthly.
Calculate interest on loans by crowdlending: Investment and financing simulations
With MytripleA you will know the amount of your monthly investment quota or of your loan before doing it, since we have developed an investment simulator so that you can compare the different operations that have opened in the marketplace or market and decide with greater security where to invest your money and which is the option that best suits your expectations, and another financing simulator for companies where you can see the quota of your loan before applying.
An example of investment and quota calculation through the French amortization system
You have € 25,000 to invest in a 9-month loan that yields a return or interest rate of 6.5%. This operation will be an operation with high profitability and the measured risk that will be the perfect alternative if your goal is to maximize your savings.
Another example would be that you have the same € 25,000 to invest in an operation guaranteed by a Reciprocal Guarantee Company for 3 years and 2% as a guaranteed interest rate. This type of investment so far you can only find them in MytripleA and is the perfect financial asset if you are an investor with risk aversion because it has a security that very few financial products have
As can be seen in both amortization tables, the monthly installments in each option are constant month by month but the composition of them is not the same.
Unlike this, the corresponding part of the amortized capital fee will be increased to be equal to the constant installments of the other months.
Equally. You can calculate your loan before applying for it thanks to the loan simulator.