By using the concept of compound interest, you can maximize your returns by reinvesting the repayments on your principal and/or loan listings on our platform with tenures between 1 to 12 months. Investors receive payments in monthly instalments or bullet repayments. You can, therefore, compound your returns by reinvesting the repayments into new loans, generating additional returns on both your principal and interests earned.
“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”Albert Einstein
Consider the following scenarios.
Scenario 1: No Reinvestment
Consider investor A who invests a principal amount of $10,000 into a loan at 12% for a period of 12 months.
At the end of the 12 months, he is repaid his principal amount $10,000 and interest of $1,200.
His return on investment is therefore 1200 / 10000= 0.12 = 12%
Scenario 2: Reinvesting principal and interest
Consider investor B who invests a principal amount of $10,000 into a 3-month invoice financing loan at 12%.
At the end of the first 3 months, he receives his principle of $10,000 and $300 in interest.
Interest = [($10,000 X 0.12) / 12] X 3 = $300
Assuming that he is able to invest in a similar invoice financing loan every 3-months, he will be able to get an interest that totals up to = $300 + $300(1.03) + $300(1.03)^2 + $300(1.03)^3 = $1255.09
His return on investment is therefore 1255.09 / 10000= 0.1255 = 12.55%
Scenario 3: Reinvesting monthly repayments and interest
Consider investor C who invests a principal amount of $10,000 into a 12-month loan at 12% for a period of 12 months.
In the first month, he receives $833.33 in principal repayment and $100 in terms of interest.
Assuming every month, he reinvests his repayment and his interest earned into a loan at 1% per month, his interest earned by the end of 12 months would be = $2,054.61
His return on investment is therefore 2054.61/10000= 0.2054 = 20.54%
As shown in the illustrations above, by reinvesting your repayments and interest into more loans, you will be able to yield higher interest rates.
Disclaimer: This article is not meant to constitute/be construed as a form of recommendation, financial advice, or an offer, invitation or solicitation from Funding Societies to buy or subscribe for any securities and/or investment products. The content and materials made available are for informational purposes only and should not be relied on without obtaining the necessary independent financial or other advice in connection therewith before making an investment or other decision as may be appropriate.
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