What is Compounding Effect / Interest?
Compounding effect / interest is the ability of an lending asset to generate sustainable profits, where if the interest of the return is revested, the interest from the lending asset is then able to make more profit in the next period (usually called compounding interest).
How Can the Yield on KoinWorks be Greater?
On KoinWorks, every Lender is able to making use of the monthly compounding effect out of the vast majority of the lending products because most of the loan terms on KoinWorks require Borrowers to pay their installment every month (monthly installment) with the composition of principal and interest.
This will make it easier for every Lender on KoinWorks platform to increase their overall lending profits over time (in the long run) because if each return in the form of principal and interest received this month immediately revested, for example, the principal and interest will return to produce profit in the following month and continues to produce a significant increase in profit in the long run.
As a comparison, to see the difference in returns obtained from the use of compounding effects and not, let's take a look at the example below:
Conditions: IDR10 million principal amount with 12% interest per year allocated in a 12-month loan.
Lending illustration with returns that are not revested:
Lending illustration with returns revested:
Lending illustration with returns revested + monthly addition of IDR1 million:
Compounding effect can be done easily on KoinWorks, therefore, you need to make use of the compounding effect in each of your lending activities with KoinWorks. To learn more details about compounding effects, please refer to this page.
Why is KoinWorks displaying effective interest rate on the Browse loan page? Find the answer on this page.