In the next couple of days Lending Club will be releasing investor statements for April. But did you know that your account balance on your statement will not match your account total you see when you login to Lending Club. How can this be?
I have been recording the daily account balance of all my Lending Club and Prosper accounts (I now have six total accounts) for the last couple of months. So, when I checked my March statements a few weeks ago I was surprised to see in some cases the balance was off by several hundred dollars. To give you an example, with my wife’s PRIME IRA account, at the end of day on March 31 I recorded the account total displayed on Lending Club’s site as $58,398.19. But when I looked at my March statement the next week the balance was $57,953.84 – a difference of $444.35.
Accrued Interest is the Culprit
The reason these numbers are off is because of something called accrued interest. When you open an account at Lending Club and start investing in notes you start earning interest on those notes immediately. Every time you login and view your account summary you will see a steadily increasing account balance (unless you have a charge-off, then your balance may go down).
This is because Lending Club accrues interest in your account even before you actually get paid for that interest. I started investing in my brand new Roth IRA account almost two weeks ago. As soon as my first loan went into current status, the very next day I noticed I had gained one cent in interest. Now, just eight days in I have “earned” 32 cents in interest. But as you can see in the screen shot above this interest is not really available yet, as in it is not reflected in my available cash.
But the Lending Club statement does not reflect this accrued interest. For this account above, I know my April statement will reflect a balance of exactly $5000.00 ignoring the few cents in interest I have earned. The statement will reflect cash, loans in funding and principal balance, accrued interest will be nowhere to be seen.
Prosper Does it Differently
Prosper takes a slightly different approach. While they do statements the same way as Lending Club, on their site they don’t post interest into your account until a payment has been made. So, when you first open an account at Prosper you won’t see a change in your balance until payments for your loans start rolling in. Prosper also doesn’t provide an account total figure like Lending Club, instead they have Principal Value and Cash Balance numbers. These numbers should correspond on your monthly statement and on their website on the last day of the month.
Which Approach is Better?
I don’t think one approach is any better or worse than the other. It is all a question of how you view the accounting. Let’s take an example of someone who makes a $500 monthly payment, and for round numbers we will assume that it is $400 of principal and $100 of interest. In reality this $100 of interest doesn’t suddenly appear on the payment due date, it accumulates throughout the month and the $100 total is paid on the due date. The question is this: halfway through the month have you earned $50 in interest or not? Lending Club say you have accrued that money and therefore they add it to your account total that displays on their site.
So, I don’t think there is any real discrepancy between the statement and the account total displayed on the screen at Lending Club. They are just two ways of looking at the same numbers. One includes accrued interest, the other does not.
One final point. If you want to work out your actual real world ROI, then you will want to ignore accrued interest. The easiest way to do this is to just use the numbers from Lending Club’s monthly statements.