The overall return on your investment will vary according to several factors; the interest rate on the loans you invest in, the term of the investment, the spread of different loans, the level of defaults in your portfolio, how you use uninvested cash and any tax which you are required to pay on your investment. The loan ratings provide you with an indication of the expected level of bad debts, allowing you to adjust the gross rate to balance the relative risk.
For more information on the average rates of interest achieved over recent loans, visit our statistics page. This will also give you information on estimated annual default rates.
For more information on tax, please see our question on tax implications or contact your tax adviser.
When using the FundingKnight investment platform, you will see the term “Effective Annual Rate”. This is the gross rate that a prospective investor would receive if they bought the loan part today at the asking price and kept it until redemption. It takes into account the timings of the scheduled payments. Please note: it is calculated before any liability for tax and any adjustment for defaults, and assumes that the borrower makes all future payments on time.